Powering Your Retirement Radio: Recent Episodes
Dan Leonard
The show will be focused on addressing questions on how to plan for retirement, maximize your benefits, saving inside and outside of your retirement accounts, Social Security, Medicare, and all things related to PG&E Retirement—hosted by Daniel W. Leonard, CFP®, EA. Dan is a PG&E Retirement Specialist and has 30+ years of experience in the financial industry; and since 2012, he has focused specifically on working with PG&E employees and retirees.
Exciting things are coming in the 4th Quarter of 2023.
Until then, the show will be in hiatus as I build new tools to help you - my listener.
Got questions or want to take one of my Summer webinars? Email dan@danleonard.expert
Welcome to "Powering Your Retirement Radio"! Today, I want to address one of the most frequently asked questions about the documents you should keep hard copies of and for how long. It doesn't matter if it's your tax return or investment statements; fortunately, digital copies are acceptable for many of these documents now. But you may have a concern about what happens if the drive fails. Many people still have banker's boxes or a filing cabinet hiding somewhere. And if you are like many people, it is overdue to be cleaned out.
I will go over Tax, Healthcare, Legal, Asset and Debt, and Other Documents to keep track of. Let's start with Tax Documents, as outside of CA, tax season is over, and in CA, it is at least starting to slow down.
A. Tax returns and supporting documents - 7 years.
B. W-2 and 1099 forms - 7 years.
C. Deduction receipts and statements - 7 years.
D. Business expense receipts and statements - 7 years.
E. Investment statements - until you sell the investments + 7 years.
F. Property records - until you sell the property + 7 years.
G. Retirement plan statements - until you close the account + 7 years.
You should keep these documents for at least seven years in case of an audit. The same goes for your W-2 and 1099 forms. Deduction receipts and statements should also be kept for seven years, as should business expense receipts and statements. You might ask why? The IRS can audit your return up to three years after it is filed unless they are claiming fraud, and then it is seven years. Investment statements and property records should be kept until you sell the investments or property, plus seven years. Finally, retirement plan statements should be kept until you close the account, plus seven years.
Now for Healthcare documents, things like:
A. Medical records - indefinitely
B. Insurance policies - indefinitely
C. Explanation of benefits (EOB) - 1 year
D. Prescription receipts - 1 year
E. Health savings account (HSA) statements - 7 years
Medical records should be kept indefinitely, as should insurance policies. Explanation of benefits (EOB) should be kept for at least one year, and prescription receipts for at least one year. Health savings account (HSA) statements should be kept for seven years. I got an EOB this week from May of last year. Since I switched carriers this year, it was good to be able to pull out the old policy and call and find out what the charge was for. Also, on HSA, since you can carry forward expenses into the future, it really is seven years after you have claimed the expense since that is when you would claim the deduction.
How about those Legal-related documents:
A. Estate planning documents - indefinitely
B. Marriage and divorce documents - indefinitely
C. Adoption and custody papers - indefinitely
D. Wills and trusts - indefinitely
E. Power of attorney - indefinitely
F. Real estate deeds - indefinitely
G. Vehicle titles - until you sell the vehicle.
H. Lawsuits and settlement agreements - indefinitely
This section is simple, keep everything. You need the current copies but also the old copies to document the changes and when they happen. It doesn't happen all that often, but when a distant relative shows up claiming they were promised or are entitled to something, having clear documentation of when a change occurred can save a lot of hassle and potentially money.
Now for Asset and debt-related documents, basically for financial information:
A. Loan agreements and promissory notes - until the debt is paid off + 7 years.
B. Home purchase and improvement documents - until you sell the home + 7 years.
C. Vehicle purchase and maintenance documents - until you sell the vehicle + 7 years.
D. Investment and brokerage account statements - until you sell the investments + 7 years.
E. Real estate purchase and sale documents - until you sell the property + 7 years.
Loan agreements and promissory notes should be kept until the debt is paid off, plus seven years. Home purchase and improvement documents should be kept until you sell the home, plus seven years. This is important when you make improvements that will increase your cost basis. Vehicle purchase and maintenance documents should be kept until you sell the vehicle, plus seven years. Investment and brokerage account statements should be kept until you sell the investments, plus seven years. On this one, I tell people to keep their monthly statements for the current year and then keep the comprehensive year-end on file, and they can get rid of the monthly statements. Finally, real estate purchase and sale documents should be kept until you sell the property, plus seven years.
Finally, all your other important documents:
A. Birth certificates, marriage licenses, and other vital records - indefinitely
B. Social Security cards - indefinitely
C. Passports - until you renew.
D. Education transcripts and diplomas - indefinitely
E. Employment contracts and personnel files - indefinitely
You should keep hard copies of these documents. Birth certificates, marriage licenses, and other vital records should be kept indefinitely, as should Social Security cards. On Social Security Cards, you can get a new one issued, but you can't get more than three in a calendar year and ten in your lifetime. Passports should be kept until you renew them. Education transcripts and diplomas should be kept indefinitely. Employment contracts and personnel files should also be kept indefinitely.
That is a bunch of documents. It's important to note that the above recommendations are general guidelines and may vary depending on individual circumstances or jurisdictional requirements. Always consult with a professional advisor if you have any questions or concerns about document retention. I have attached a link here so you can download a checklist or fill out an online version.
Until next time stay safe!
You can visit the podcast website here: https://poweringyourretirement.com/2023/05/09/documents
Welcome back to Powering Your Retirement Radio. I am Dan Leonard, your host. Today I am joined by Ed Sanders.
Ed Sanders is a financial strategist with over 19 years of experience in the finance industry. Originally from Akron, Ohio, Ed attended the University of Arizona before moving to the Bay Area to work for Wells Fargo after graduation.
In 2004, Ed made the decision to leave the corporate world behind and pursue his passion for helping people achieve financial freedom. As a financial strategist, Ed specializes in college planning, risk reduction, creating tax-free income sources, and eliminating debt.
In this episode, Ed will share answers to many problems people face including:
Debt as a hindrance to accumulating wealth.
What is your effective interest rate, and why it matters.
Eliminating Debt Forever.
The snowball strategy.
Paying cash for cars and what that costs you.
Ed's Webinars Series.
Thank you for tuning in to today's podcast with a financial strategist, Ed Sanders. We hope you found his insights and advice on college planning, risk reduction, creating tax-free income sources, and debt elimination helpful and informative.
If you have any further questions or would like to learn more about Ed's services, please visit his website and other links below. Don't forget to subscribe to our podcast for more expert insights and advice on a variety of topics.
Thank you again for listening, and we'll talk with you in the next episode.
Ed's Contact Information: LinkedIn: https://www.linkedin.com/in/edwardfsanders
Website: www.edwardfsanders.com
Enter debt for immediate effective interest cost: www.eliminatedebtforever.com To book a time to talk to Ed → http://esanders.youcanbook.me
For more episodes, please visit the Podcasts website: https://poweringyourretirement.com/2023/04/29/edward-f-sanders-financial-strategist
Hello, and welcome back to Powering Your Retirement Radio. Today's episode is not uplifting, but still worth a listen. We will all likely face this event once or twice in our lifetimes. Unfortunately, like most emotional and personal things, you learn by doing it and never really share it with anyone. So, here is an outline of things to consider when your spouse or a loved one passes away.
1 Notify Friends and Family, designate the family members who can help with some of the necessary tasks 2 Contact a funeral home, medical school crematorium according to the deceased wishes 3 If the deceased was religious, contact their place of worship to arrange for services and other customs. Flowers, Picture Boards, Videos, Memorial Cards, Readings, etc... 4
Hello, and welcome back to Powering Your Retirement Radio. In today’s episode, I want to discuss the most often question I get these days: "Should I buy Treasury Bills?” I also want to discuss what happened with Silicon Valley Bank (SVB).
It seems like several times each week. Someone calls to ask what I think about buying Treasury Bills. I first want to know why they want to buy them. Is it because they have extra money languishing in the bank, or do they want to move money from their current investments to something guaranteed?
Either way, you can make a case for it, but you need to determine if it is shifting money that is already invested. What will cause you to change your investments in the future? If it is cash in the bank, then it is a little less complicated. With rising interest rates, you should plan to buy bonds that you plan to hold to maturity, in my opinion. You can trade them, but that changes the simplicity of buying a 3- or 6-month Treasury Bill that will mature at par.
I will tie in with why this is what happened that caused the failure of SVB. Being forced to sell longer-dated Treasury Securities that were in a paper loss position because of interest rate increases. If they didn’t face a run on the bank and could have held to maturity, they would have gotten all their money back. Unfortunately for SVB, they were forced to realize the loss and caused the second-biggest bank failure in US History.
Have a listen for the complete story.
For more information, visit the podcasts website: https://poweringyourretirement.com/2023/03/24/treasury-bills
Welcome back to Powering Your Retirement Radio. I want to discuss Long Term Care or Extended Care. This is insurance and not an investment. Insurance, in the long run, is better to have and not need, than to need and not have. It is also better to buy it before there is a need because, at that point, it is either very expensive or not available.
So why do you need Extended Care Insurance? You need it because of the unknowable circumstances around your future health, not just yours but, if you are married, your spouse as well. As counterintuitive as this sounds, Extended Care Insurance is not for someone who falls ill or needs care. It is for the surviving spouse. I hear all of the jokes and uncomfortable laughter around; they’ll hold a pillow over my head… No, they won’t.
Extended Care isn’t just for end-of-life situations. It covers you if there is a car accident, if you have a stroke or if some other issue where you need prolonged care during your recovery. No one wants to be a burden to their children, and even fewer people want to leave a healthy spouse without enough money to live on because the assets went toward their care.
So what is there to do? There are a few options, including Traditional Long Term Care Insurance, which is not very popular, but still available. There is Hybrid Life Insurance that provides a Long Term Care Rider. And finally, there are Long Term Care Annuities.
Here is a quick overview, which will hopefully give you enough information to determine what makes sense for you. As always, I am happy to chat if you have questions.
Traditional Long-Term Care Insurance: This is what most people think of. It’s a use-it-or-lose-it policy where you pay in for your lifetime, and if you never need it, there is nothing to be paid out. This is the insurance I personally own, only because I got it when I worked at Genworth, and it was inexpensive at the time. Given the cost of care, my premiums over my expected life span will equal roughly 6 months' worth of coverage in a nursing facility. Since the average stay is 3 years, I am comfortable with the fact that I have it, even if I don’t need it.
Hybrid Life Insurance with a Long-Term Care Rider: This is a life insurance policy with a death benefit that can be converted to pay for long-term care needs if needed. The good part is that if you need long-term care, you have a predetermined amount of coverage. If you don’t need it, there is a death benefit for your heirs, so the money you paid in premiums is not a sunk cost you can’t recover. If you collect on the death benefit, you don’t lose your money, but the growth of the funds is more like investing in a CD rather than the market. The key is that you have protection since you have insurance and you aren’t spending the assets meant to provide your retirement income. This can be purchased over your lifetime or a set number of years, usually 10 or 20 and you are subject to underwriting on these policies.
Annuities with a Long-Term Care Rider: These are usually on a fixed or index annuity and are purchased with a lump sum with some kind of multiple, say 1, 2, or 3 times the amount deposited if you need long-term care. So you invest $100,000 in the fixed annuity, and it grows like any other fixed annuity, and like the hybrid policy above, if there is a need for long-term care, the multiplier kicks in, and your $100,000 now covers $200,000 or more of long-term care bills. There is some underwriting, but it generally has a better issue rate than the hybrid or traditional policies.
The quick recap is that a traditional policy is less expensive than a hybrid policy, but with no way to recoup the expense if you don’t need it. Hybrid is good for a person who is a planner but wants some protection. The caveat is that you also need to be insurable. The annuity will likely get you coverage in a situation when you can’t get a hybrid policy, but you need to have a larger sum of money all at once. All three will help you protect your assets in the future, but you need to apply and go through the process.
A final thought, the people most interested in long-term care are the ones who have seen a parent, spouse, or another relative need care and know what the costs are. If you want to see it for yourself, here is a link to the Genworth Cost of Care Website.
Visit the Podcast Website for more information: https://poweringyourretirement.com/2023/03/10/long-term-care-basics/
How can you save $1,000,000 in your 401k between the ages of 30 and 60? We'll cover strategies for maximizing your contributions, making smart investment decisions, and taking advantage of employer matching programs in this episode.
Maximizing Contributions
The first step in saving $1,000,000 in your 401k is to maximize your contributions. If you're 30 years old, you have 30 years to save, so the earlier you start, the more you can save. The contribution limit for a 401k is $19,000 in 2022, with an additional $6,500 catch-up contribution for those over 50. Consider increasing your contribution rate by 1% each year to reach the maximum contribution limit. In my experience, you do not need to maximize your contribution from the start. Being consistent over the years yields a far better outcome.
Investment Decisions
Making smart investment decisions is key to growing your 401k balance. Start by understanding your risk tolerance and investing in a mix of low-risk, moderate-risk, and high-risk options. Consider using a diversified portfolio, which you can adjust as you near retirement age. You need help making investment decisions that align with your goals. This is where consulting a financial advisor is something to consider.
Employer Matching Programs
Many employers offer matching contributions to 401k plans. If your employer offers a match, make sure to contribute enough to take advantage of the full match. This is free money, so make sure to maximize this opportunity. If your employer does not offer a match, consider other savings options, such as a traditional or Roth IRA.
Compound Interest
Compound interest is a powerful tool for growing your savings. Over time, the interest you earn on your 401k contributions can compound, increasing the growth of your balance. Consider using an online calculator to see how much you can earn through compound interest over time. At some point, the amount you contribute annually will be smaller than the interest you receive.
Saving $1,000,000 in your 401k between the ages of 30 and 60 is an achievable goal with the right strategies in place.
Start by maximizing your contributions, making smart investment decisions, and taking advantage of employer matching programs. By starting early and taking advantage of the power of compound interest, you can build a secure financial future for yourself and your family.
For more information, please visit the podcast's website: https://poweringyourretirement.com/2023/02/23/1000000
How much should I save for Retirement Annually?
The amount you should save for retirement annually depends on several factors, including your age, income, current savings, and retirement goals. Generally speaking, financial experts recommend saving 10-15% of your income each year for retirement. However, it's important to remember that this is just a guideline, and you should adjust your savings rate based on your own individual needs.
How much do I need to save to be able to retire?
The amount you need to save to be able to retire comfortably depends on several factors, including your age, income, current savings, and retirement goals. Generally speaking, financial experts recommend having saved 10-12 times your annual income by the time you retire. So, for example, if you make $50,000 per year, you should have saved at least $500,000 by the time you retire. It's important to note that this is just a guideline and that you should adjust your savings rate based on your own individual needs.
How much do I need to save for health care in retirement?
The amount you need to save for health care in retirement will depend on several factors, including your age, current health care costs, and your retirement goals. Generally speaking, financial experts recommend saving between 3-8% of your income each year for health care in retirement. However, it's important to remember that this is just a guideline, and you should adjust your savings rate based on your own individual needs.
What is a safe withdrawal rate in retirement?
A safe withdrawal rate in retirement is the amount of money you can safely withdraw from your retirement savings each year without running out of money. Generally speaking, financial experts recommend withdrawing no more than 4-5% of your retirement savings each year. However, it's important to remember that this is just a guideline, and you should adjust your withdrawal rate based on your own individual needs.
What are the pros and cons of Dollar cost averaging?
The pros of dollar cost averaging include the following:
- Reduced Risk: By investing a fixed dollar amount over time, you will be able to spread out your risk and potentially minimize losses if the market drops. 2. Lower Start-Up Costs: Dollar cost averaging allows you to start investing with a smaller amount of money, which can be helpful if you don't have a large sum to invest all at once. 3. Emotional Benefits: Investing with a regular, fixed amount each month can help to manage your emotions and reduce the temptation to invest impulsively.
The cons of dollar cost averaging include the following:
- Lower Average Returns: Investing regularly each month means that you may miss out on larger gains that could be made if you invested a lump sum all at once. 2. Reduced Flexibility: With dollar cost averaging, you are limited to investing a fixed dollar amount each month, which can limit your ability to adjust your investments in response to changing market conditions. 3. Opportunity Cost: By investing smaller amounts over time, you may miss out on larger investments that could potentially generate higher returns.
What are the go-go, slow-go, and no-go phases of retirement?
The go-go phase of retirement is the period of time when you are most active and able to do the things you want to do. During this phase, you are able to travel, participate in hobbies, and engage in social activities. The slow-go phase of retirement is when you may need to start slowing down a bit due to age or health issues, but you are still able to do some of the things you enjoy.
The no-go phase of retirement is when you are no longer able to participate in activities as you have in the past actively, and you may need to rely more on family and friends for help.
For more information, visit the podcast's website: https://poweringyourretirement.com/2023/02/09/saving-for-retirement
The great reset is coming. Every year at the end of the year, everything gets set back to Zero. Everyone likes it when the market is up, but 2022 certainly has not been an up year. Every year on December 31st, all reporting systems reset. When the market is up, an advisor dislikes the reset since you lose the good performance. When the market is down, we don’t mind it as much because it is great to forget the downturn.
Regardless of whether the market is up or down, the fact that the reset happens means you need to understand math. For instance, this year, the market is currently down 17%, which means if you started the year with $100,000, you’d have $83,000 today. If the year ended today, it would take a 20% return on the $83,000 to get back $100,000. If you were up 17% and then lost 14.5%, you would be back at $100,000.
Enough math. The market goes up and down. Percentages can play games with what you need to make up for downturns. The key to remember is currently, every time the market has gone down, it has come back and reached new highs. While I can’t say that will happen again, with certainty, it seems likely that it will happen.
If you are retiring this year, it can be a little trickier since you will be pulling a higher percentage of your portfolio since it is the account would be down. As the market grows, you will be taking a smaller percentage.
If you are still working, you are regularly investing in your 401k, which means you are Dollar Cost Averaging each month. As the market falls, you buy a few more shares each month than before. The whole time you are lowering your cost basis. Once the market returns to its previous high levels, you don’t lose those shares. They are there for as long as you hold them.
Once you retire and start taking money out of your account, you are not likely to take all your money out simultaneously. So, you start systematically withdrawing money out of your account. This is essentially the same concept of Dollar Cost Averaging but reverse. If the market is going up, you sell fewer shares every month, and if it goes down, you will sell a few more shares.
Since retirement is hopefully a multi-decade experience, you are going to sell shares and take money over several market cycles, meaning the withdrawals will likely average out over time.
From 1950 to 2020, on 12 different occasions, the S & P 500 fell 20% or more, with an average fall taking over 340 days and the average decline being just over 33.3%. The market falls more than 10% about every 1.2 years, and from 1980 to 2020, there have only been two years without a 5% loss and another 4 years where it only fell 5% one time. So that is 34 years with multiple 5% declines.
I know that is a lot of numbers, but the story's moral is that despite this lackluster year, with high inflation, and political upset, what is happening in the market is not unusual. There are lots of people that want you to reposition portfolios and change strategies. Now is not the time to change your plan. Good solid diversified portfolios are meant to weather difficult markets. The goal is not to not go down but to go down less. With the market down 17%, you need a 20% return to break even. If you are only down 13%, you only need a 15% return to break even.
Stay strong, review your plan, and know your numbers.
Visit the podcast website here: https://poweringyourretirement.com/2022/12/01/the-reset
Health Savings Accounts (HSA) are great for saving for future medical expenses. This isn’t news to most people, but one thing I learned that I should have known was if you have an expense this year and you don’t use it, you don’t lose it.
You can accumulate receipts and year you are covered by a High Deductible Health Plan (HDHP)...meaning if you can afford to pay your expenses now, you can save money that will grow TRIPLE tax-free.
You can collect on your prior expenses in the future after your money has grown tax-free and not have to pay tax on that money ever.
Today I am going to cover five basics:
1) Eligibility
2) Tax Treatment
3) Accumulation
4) Decumulation
5) Portability
The average married couple will spend approximately $361,000 for health care in retirement. At today’s tax rates, if you were in the 24% Federal Tax Bracket and in California’s 9.3% State Tax bracket. Not paying tax on those distributions could save you $180,229.38 in tax, if you were to pull the money from a retirement account to pay those expenses.
Learn More on the podcast website: https://poweringyourretirement.com/2022/11/10/hsabasics
For More Information visit the podcast's website: https://poweringyourretirement.com/2022/10/20/ss_cola
At age 72, advisors must remind clients about the Required Minimum Distributions (RMDs). With some version of this, for decades, the IRS has allowed you to defer paying taxes on your retirement accounts, but now, like the Pied Piper, they want to get paid.
It is not usually received warmly or happily, but as an added tax burden they had knowingly forgotten or, in some cases, never knew about. The good news is there are strategies to leverage the benefits of RMDs.
In this episode, I discuss the basics of how you need to take them, what accounts can be combined and what accounts need to stand alone. You want to ensure you understand the rules because the penalty for not taking an RMD is up to 50% of the amount not taken. Ouch, that is high even for the IRS.
Two strategies to lower and avoid paying take altogether are Qualified Charitable Deductions (QCDs) and Roth Conversions. I’ll explain in greater detail in the episode, but QCDs allow you to avoid the tax altogether and helps to avoid phantom taxes. The extra income can create even if it is donated once taken.
Roth Conversions lower future RMDs since Roth IRAs do not need to take RMDs and all growth once converted is tax-free. You do have to pay tax at the time of the conversion. I will cover some strategies to minimize those taxes and how to spread them out.
For more information, you can visit the podcast website: https://poweringyourretirement.com/2022/10/06/rmd-strategies
Welcome back to Powering Your Retirement Radio. This week we are talking about the four different Tax buckets to everyone has access to.
Ordinary Income Bucket
This bucket is your paycheck, regular taxable investments, rental income, and Social Security. It is money you are earning that is taxed at ordinary income rates. Income tax rates are somewhere between 0% to 37%
Tax Deferred Bucket
This bucket is your retirement vehicle that offers a tax deferral of ordinary income tax today. The trade-off is later. All distributions are taxed at ordinary income rates, which may or may not be lower than when you earned the initial money deposited. Again, tax rates are somewhere between 0% to 37%
Capital Gains Bucket
This bucket is regular investments held for over a year. If you own a stock, rental property, or other capital assets. On the dividends, you need to hold the stocks for different periods, generally 61 to 91 days (more info. here). Capital Gain tax rates are somewhere between 0% to 20%. For most people, this will result in a lower tax rate.
Tax-Free Bucket
This bucket is everyone's favorite bucket, Tax-Free Investments. All growth once you make the investment is Tax-Free. The catch is you are limited to how much you can contribute annually. You can convert other retirement assets unlimitedly, but you have to pay the tax due when you convert. Converting too much at one time can push you into a high tax bracket when you convert.
Visit the Podcast Website for more information: https://poweringyourretirement.com/2022/09/22/tax-buckets
Welcome back to Powering Your Retirement Radio. This week we are talking about the four different Tax buckets to everyone has access to.
Ordinary Income Bucket
This bucket is your paycheck, regular taxable investments, rental income, and Social Security. It is money you are earning that is taxed at ordinary income rates. Income tax rates are somewhere between 0% to 37%
Tax Deferred Bucket
This bucket is your retirement vehicle that offers a tax deferral of ordinary income tax today. The trade-off is later. All distributions are taxed at ordinary income rates, which may or may not be lower than when you earned the initial money deposited. Again, tax rates are somewhere between 0% to 37%
Capital Gains Bucket
This bucket is regular investments held for over a year. If you own a stock, rental property, or other capital assets. On the dividends, you need to hold the stocks for different periods, generally 61 to 91 days (more info. here). Capital Gain tax rates are somewhere between 0% to 20%. For most people, this will result in a lower tax rate.
Tax-Free Bucket
This bucket is everyone's favorite bucket, Tax-Free Investments. All growth once you make the investment is Tax-Free. The catch is you are limited to how much you can contribute annually. You can convert other retirement assets unlimitedly, but you have to pay the tax due when you convert. Converting too much at one time can push you into a high tax bracket when you convert.
Visit the Podcast Website for more information: https://poweringyourretirement.com/2022/09/22/tax-buckets
Welcome back to Powering Your Retirement Radio. In the episode, we will discuss the different Milestones that certain birthdays bring.
0 to 18 years - Kiddie Tax Issues
18+ - Claiming children as dependents
18 or 21, even 25 - Age of Majority for UTMA and UGMA accounts
26 - "adult" children of parent's healthcare
The Gap years - College to Age 50 - Retirement Savings
50+- "Catch-Up" Contributions - 401k, 403b, IRA, Roth IRA
55+- "early" retirement - Penalty Free Distributions from company plans, in the right circumstances.
59 ½ - Access to all retirement assets penalty-free
60+ - Ability to claim Widow Benefits (if applicable)
62+ - Social Security Benefit claiming
65+ - Medicare sign-up and annual renewals
~68+ - Future RMD (Required Minimum Distribution) Planning
70 ½+ - QCD (Qualified Charitable Distributions), avoids sneaky taxes
72+ - RMD (Required Minimum Distribution) start
Visit the Podcast site: https://poweringyourretirement.com/2022/09/15/tax-birthdays-and-milestones
Welcome back to Powering Your Retirement Radio. In the episode, we will discuss the different Milestones that certain birthdays bring.
0 to 18 years - Kiddie Tax Issues
18+ - Claiming children as dependents
18 or 21, even 25 - Age of Majority for UTMA and UGMA accounts
26 - "adult" children of parent's healthcare
The Gap years - College to Age 50 - Retirement Savings
50+- "Catch-Up" Contributions - 401k, 403b, IRA, Roth IRA
55+- "early" retirement - Penalty Free Distributions from company plans, in the right circumstances.
59 ½ - Access to all retirement assets penalty-free
60+ - Ability to claim Widow Benefits (if applicable)
62+ - Social Security Benefit claiming
65+ - Medicare sign-up and annual renewals
~68+ - Future RMD (Required Minimum Distribution) Planning
70 ½+ - QCD (Qualified Charitable Distributions), avoids sneaky taxes
72+ - RMD (Required Minimum Distribution) start
Visit the Podcast site: https://poweringyourretirement.com/2022/09/15/tax-birthdays-and-milestones
1. Contribution Calculation
Every year, when you get a raise, you automatically save a little more money. At some point, you will likely hit the 401k contribution limit. Currently, that limit is $20,500. That amount is known as your Elective Deferral. If you divide the elective deferral amount by your base salary (ex. $150,000), the result would be the exact percentage you need to save to reach $20,500.
| Annual Contribution | / | Base Salary | = | Decimal | X 100 | Contribution % | | $20,500 | / | $150,000 | = | 0.1366 | X 100 | 13.66% | | $10,000 | / | $150,000 | = | 0.0667 | X 100 | 6.67% |
If you only want to save $10,000 and you make $150,000, your savings percentage would be 10,000 / 150,000 = 0.0667. In the PG&E 401k, you must save a whole number as a percentage. So you can round up or down depending on your cash flow needs. 6% of $150,000 would be $9,000 and 7% would be $10,500. In tip #5 I will explain why you don’t want to maximize your contribution before the end of the year unless you use tips #4 & #5.
ProTip: Sign up for the 1% annual increase in your contribution limit each year in April. After your raise hits your paycheck, 1% goes to your 401k and the rest to you. This will help you reach your elective deferral limit sooner, which will help you maximize your savings over your career.
2. Catch Contributions (50+)
Age has its advantages, and one of them is the US Government tries to encourage people when they turn 50 to increase their savings. The government allows you to save an additional $6,500 per year. PG&E requires you to make a separate election for the catch contribution. When you turn 50, if you go into your Fidelity Net Benefits account, you set up your elective deferral amount on the page. You can select a percentage for the catch-up contributions.
The calculation is the same as above. The difference is you would divide $6,500 by your base salary.
| Annual Contribution | / | Base Salary | = | Decimal | X 100 | Contribution % | | $6,500 | / | $150,000 | = | 0.433 | X 100 | 4.33% |
Again you need to pick a whole number percentage. In this case, as long as you can afford I would round up. I’ll explain why in tips #4 & #5.
3. Minimum Contributions to Maximize Match
Cash Balance (Union & Management) (New Pension)
Union Match equals $0.75 per $1 up to 8% after 1 year of service.
Management and A&T Match equals $0.75 per $1 up to 8% as soon as you start contributing.
Final Average Pay Matching Calculation (Old Pension)
Union
The match equals $0.60 per $1 up to 3% or 6%.
1 to 3 years of service is $0.60 per $1 up to 3%
3 years + is $0.60 per $1 up to 6%
Management and A&T
The match equals $0.75 per $1 up to 6%.
- Monthly Matching
Since PG&E matches every month, you need to make a contribution on each paycheck, or PG&E won’t add a matching contribution. The easiest way to see if you to make sure you are getting the maximum match is to look at your last December stub and make sure you made a contribution.
At least once a year, a PG&E employee assures me they contribute monthly. After pulling their December paystub, they pull their November paystub, and so on, until they see the contributions. Then the realization that they have been missing out on a month or two of matching dollars for several years.
You can either adjust your contribution percentage downward using Tip #1, which, if done right, would pull the same amount of money and get the maximum matching amount. Or, you can read Tip #5, save more, and get the maximum matching amount.
to be continued...
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Spillover Election
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After-Tax Contributions, regardless of income
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BrokerageLink
*Bonus Tip
Welcome back to Powering Your Retirement Radio. I will revisit my Roth Conversions on Sale (Episode 33). I have received several calls on the episode, and in some cases, the idea of doing a conversion did not make sense.
There are a few reasons why. First, you have to have an idea of what your retirement income is going to be. If you are currently in the 24% Federal tax bracket, you want to ensure the conversion won't push you into the 32% bracket. You also have to have a feel for your retirement income. Many people see a dip in their income when they retire. If you end up in a lower tax bracket in retirement and you pay taxes at a higher tax rate now, you could be overpaying your taxes. You may avoid a giant Required Minimum Distribution later or higher tax rates, but those numbers are variables you can only guess at.
Second, Medicare assesses Income Related Monthly Adjustment Amounts (IRMAA). IRMAA charges are something that surprises many people. Because Medicare starts tracking your taxable income at age 63. Medicare sets IRMAA charges based on a 2-year look back, so when you turn 65, Medicare looks at your age 63 income. Currently, in 2022 your Part B Premium is $170.10 a person. If in 2020 you made$175,000 your Part B cost would be $544.30 a person. That is almost $375 a month or $4,490 a year more. So large Roth Conversion can have unintended consequences down the road you aren't even aware of.
Third, when you pull money from a Roth IRA, the Roth Distribution Ordering Rules come into play. The good news is contributions to a Roth are never subject to taxes or penalties. However, conversions are a different story. The converted amounts must stay in the Roth IRA for five years or until you turn 59 1/2. Finally, earnings on the money have a higher bar. If there are earnings, you have to be over 59 1/2, and the account has to be open for five years, or your earnings are subject to tax and penalties.
These 3 points are a good reminder of why even the most confident do-it-yourself investor should check with a professional to ensure they don't miss something. Imagine finding out two years from now the Roth conversion you made will cost you an additional $4,490 in Medicare premiums? Not a great feeling.
Thank you for tuning in this week. I will be back in two weeks with another episode. Until then, stay safe.
Welcome back to Powering Your Retirement Radio. In this episode, I discuss the three items mentioned in the article at the bottom of this post.
The TLDR answer is nobody knows how it will end, but it doesn't mean people won't try to predict it. The key is to focus on what is controllable.
What are the three common reasons Bear Market's reasons end?
1) Individual investors throw in the towel - Capitulation. While it does happen, there are many occasions that it has not happened.
2) Fear hits a high - measured by the VIX (CBOE Volatility Index). In 2009 the VIX was close to 80, and in 2020 the VIX hit the high 60's. In the 2008 - 2009 bear market, the market fell another 19% after the VIX peaked.
3) Stocks have to get cheaper - P/E Ratio. In 2008 - 2009 stocks hit a low of 13x Long Term Earnings. That is roughly 20% below the long-term average.
Some people believe doing nothing is the right thing to do. Sometimes it is the right thing to do. Sometimes it isn't. As I said earlier, you have to control what you can control.
Adjusting your portfolio sometimes makes sense. Sometimes being consistent and Dollar Cost Averaging is the way to go. However, now is not the time to make radical changes. In a retirement account, almost nobody needs all their money at one time.
The best way to ensure your account is correctly allocated is to confirm your risk tolerance and that your investment still matches.
Remember, stay calm and adjust if needed.
Please consult your financial advisor and tax preparer before making any changes to your portfolio.
The article referenced was by Jason Zweig, entitled "You Can't Predict When Bear Markets End. So Don't Try"
This is a link to where it should appear, as of today (7/12/22) the website only shows articles until 7/8/22, and the article appeared on 7/13/22.
https://www.wsj.com/news/author/jason-zweig?mod=nav_top_subsection
Roth conversions are on sale. Let’s look at what to consider when considering a Roth conversion. If you believe we are in a downturn and the stock market will hit new all-time highs at some point, you need to consider a Roth Conversion.
Topics covered:
- Your Current Tax Rate
- Available cash to pay taxes created
- Time Frame until you need the money
- Total anticipated retirement income and savings
- The anticipation of your future tax rates
Welcome back. This week I talk about Digital Assets and the Fed Meeting yesterday. The show was recorded Monday so that you can hear my predictions. Spoiler alert, I didn’t do too bad.
Last week I attended the Digital Assets Council of Financial Professionals (DACFP) this April. I completed their certification course, and this week I finished the Certified Digital Asset Advisor™ (CDAA™).
DACFP is headed up by Ric Edelman, which, if you have a 401K plan through Fidelity, you may be familiar with since his old firm Ric Edelman Financial Engines, helps manage many 401ks. I have a similar offering, but it is not nearly as large of an operation. On the plus side, it is a more personalized approach.
So, Digital Assets (Bitcoin, Ethereum, etc.) have been in the press a lot in the last month. In the Digital space, they call it a Crypto Winter. In the stock market, it is like a Bear Market. So, we heard from everyone from, Advisors to Money Managers to Miners.
The correction in Digital Assets, like any other asset, is healthy, but that does not mean pain-free. The best analogy I heard was it is like a Root Canal. Once it is over, you feel better and are in a better place, but nobody is hoping for one.
There is a lot of concern about safety and scams, and rightfully so. Most people have heard of FOMO (Fear of missing out), while with Digital Assets, many people are YOYO (You are on your own). As the industry matures, there will be more regulation, but when you have a decentralized asset, that means YOYO. Some people that are old enough may remember Bearer Bonds, where you clip an interest coupon and go to the bank to get your interest. Just like those days with Digital Assets, if you are doing this without help, you hold all the passwords and if they are lost, so are your assets. If someone gets those passwords, they can take your assets.
Hopefully, by July, I will be able to assist people looking to invest in Digital Assets.
On to the Federal Reserve and the Markets. The confusion seems to be the order of the day. The Fed has seemed to be behind interest rates for several months, trying to raise interest rates to tame inflation. A few weeks ago, the prediction was a 75 bp move backtracked to 50 bp. In my opinion, putting them in the wrong place. If they raise by 75bp as people think they should, then it would seem like things are worse than just two weeks ago when they said 50bp, down from 75bp at the last meeting. If they do 50 bp and it doesn’t help, the Fed will blame them for being too conservative.
*(What happened – edited in) The Fed raised 75bp, and the market initially reacted favorably. However, overnight everyone got to worrying, and things sold off at the open. With a few minutes to go in the day, the S&P 500 is off over 3.25% for the day.
The good news is that people saving for retirement are constantly Dollar Cost Averaging (DCA). Over time as the price rises and falls, you continue to buy shares. Sometimes at a higher and sometimes at a lower price. Over time using DCA, you tend to own more shares, which is a good thing, provided the market eventually hits a new high, as it has every time it has declined in the past. Maybe this time it will be different. Unfortunately, sometimes it takes a long time to recover. That is why planning for the long term is an excellent way to prepare when you are saving for retirement.
Well, the sell of continues. When will the doom and gloom end? That is the question of the day. Welcome back to Powering Your Retirement Radio.
More than 10 trillion of paper wealth has been lost since the beginning of 2022. The NASDAQ and Russell 2000 have reached Bear Market levels. The S&P 500 is approaching and may actually get there before this episode is released.
The Fed draining liquidity from the markets to fight inflation is the leading cause of the pain the market is experiencing. To a certain extent, the Fed is seemingly okay with hurting the financial markets in an attempt to curb inflation.
Over the last 3 trading days stocks, bonds and commodities are down. Since 1965 this has only been the case less than 9% of the time. The Stay at Home Stocks tracked by Piper Cornerstone is down by more than 54% from their peak six months ago. That is more than the 2008 16-month meltdown. This is only a basket where 2008 was the whole market, but it is not a good sign.
Economists predicting a Recession jumped from 17% to 30% in a short period. That doesn’t mean anything other than people's opinions about the market are changing. Since WWII, there have been 12 Recessions with an average decline of 30%.
Finally, the Smart Money ve Dumb Money Index shows the Dumb Money Confidence reaching one of the lowest readings in 23 years. The Crowd Sentiment poll has moved into the extreme pessimism territory.
So when will it end, good question, nobody thought 2008 would stretch on for 16 months. When it turned it turned quickly and many people missed out on the initial rebound. Nobody knows when the market will turn. Likely it will not be expected, people trying to outguess the market will likely be caught flat-footed. People who hold their course will make their money back in time.
There is no guarantee that will happen, past predictions are no guarantee of future returns. Blah, blah, blah, we are all adults, you should not rely sold on this podcast and post for advice. I am always happy to talk to people and you can set up a time to talk at www.talkwithDL.com
Hang in there, the market can make us all second guess well throughout plans. Until next time, stay safe and remain strong.
Here is a link to an article that which most of these numbers came from: https://www.schwab.com/learn/story/doom-and-gloom-when-will-it-end
April was a terrible month in the markets, in fact, the NASDAQ is off to the worst start to a calendar year ever!
There are lots of reasons to be nervous about the markets, economy, and peace around the world.
The one thing you should not lose faith in is your financial plan, these are the times to hold steady and stay the course. That doesn't mean you can't adjust your course. It means now is not the time to sell and go to the sidelines.
Here are some links to some of the sources I mention in the podcast.
Worst start to a year for the NASDAQ ever!
FMOC Rate History
Probability of a couple reaching age 90
FedWatch Website
Dollar-Cost Averaging Article
JP Morgan Guide to the Markets (Slide 62)
Use the arrows to navigate to slide 62, use the left side it will take you backward to slide 62 quicker.
When can I retire? This is easily one of the most often asked questions I get?
Like most things, the answer is very unsatisfying; it depends. That doesn't mean many people aren't pleased with the outcome. It is next to impossible to look at someone's assets and tell them they can retire without knowing about their lifestyle and debt.
I use a 3-meeting process to gain "Command of the Facts." Then, when we are done, whether you are skeptical that it seems too good to be true or it is not what you hoped for, I can ask which number you think is off.
Since I start by getting real numbers from actual statements, the rest is math. You can take exception with the assumptions. I believe I use conservative assumptions. Instead, I would call you to tell you things are going better than expected. Asking someone to work one more year because the assumptions were off is not in anyone's best interest.
Thank you for listening, and as always, if you have a question, you can book a time to talk at www.TalkwithDL.com
Be well and stay safe.
Here is a breakdown of the 10 themes and a link to the full report
10 investment themes for 2022
1 Pricing power
2 Tech trifecta
3 Dividend comeback
4 Health care innovation
5 Transportation transformation
6 China challenges and opportunities
7 Media disruption
8 Future of financials
9 ESG everywhere
10 Flexible fixed income
- Volatility Perspective
To see the full report from Capital Group, visit their site HERE.
Everyone has questions, a common one is when to claim Social Security? Last week I had an individual in asking that very question. I think this person was like many people I talk to, they wanted a definitive answer, not a word problem from the SAT test. Sadly, there isn’t a single right answer.
If you want to blow your mind, you can claim Social Security in any one of the 96 months from your 62nd to 70th Birthday, if you are married your spouse has the same 96 months, so there are 192 decision points assuming one spouse has a higher earnings history there is the possibility of collecting a Spousal Benefit. Spousal Benefits stop at your full retirement age, which adds another 60 decision points. So that is 252 different options to consider? Are your eyes glazing over yet?
I find Social Security claiming to be an emotional decision, not a financial decision. There is no one size fits all answer to when to claim Social Security, because of the amount of unknowns in the calculation. When you start factoring in life expectancy to the 252 decisions point it is enough to drive you mad. I always ask what is the goal for the money from Social Security? Biggest pile of money possible over your lifetime, or reclaiming your life as soon as possible.
Back to my clients, he started with I should take at 62, right? I started to explain how delaying could lead to more money over their lifetime. The conversation took an immediate 180-degree turn. “Okay, then I’ll wait until age 70,” was his reply. I asked how he planned to bridge the income gap not claiming Social Security would cause? Another 180-degree turn, “okay then I should take it at 62?” Round and round they went until we created a spreadsheet showing the cumulative dollars they would receive over the years. It was helpful, but it still doesn’t help due to the unknown of life expectancy.
Here is an example of what the decision looks like, I am using a real set of Social Security numbers, which at age 62 would pay $1,896, at age 67 would pay $2,693, and at age 70 would pay $3,340.
Let’s look at some numbers, at age 62, you would receive $22,752 a year which would add up to $113,760 before the 1st payment of the Full Retirement Age (67) stream and $182,016 if you waited until age 70. Over 30 years the total income (not adjusted for COLA) would be worth $682,560.
At age 67, you are starting behind, but you’d have a larger payment of $2, 693 and $32,316 a year. At the end of 12 years (age 78), the stream of income from age 67 to age 79 would have caught up and be ahead of the age 62 stream by $1,008. Each month from here on out the gap would grow. At the end of the 30-year period base on starting at age 62. The 67 to 92 stream would be worth $807,900. That is $125,340 more, but you have to be alive to collect it.
Finally, if you were patient and waited until age 70 your starting payment would be $3,340 a month and $40,080 a year. The 70-year-old stream start behind the 62-year-old stream by $182,016. The 67-year-old stream has a lead of $96,948. The large payment catches up to the 62 -year-old stream in the 11th year and it catches the 67-year-old stream in the 13th year. The gap continues to grow from then on. The biggest pile of money if you live to 84 years old is going to be waiting until age 70. This stream of income at the end of the age 62 30-year timeframe would be worth $881,760, which is $199,200 and $73,860 more for age 62 and 67 respectively.
The conclusion is you have to make an educated guess on your health, longevity, and vitality. Knowing one’s a to have the desire and ability and not be able to do things and likewise having the money, but not the ability to enjoy are the two least desired outcomes.
What it boils down to is if you don’t think for whatever reason you will live into your 80s, claiming early can make sense. If everyone in your family lives until their 90s waiting will lead to more money. The follow-up question is are you willing to trade the extra time waiting, for the higher payout. If you can go without the income and still be retired, it is probably okay to wait. If you are spending down assets in the hope of getting more money from Social Security, you need to dig a little deep to make sure you are making the right choice for you and your family.
In my experience most people take Social Security, based around when their total income including Social Security reaches their desired level, not based on what leads to the biggest pile of money, but what lets people reclaim their life as early as possible. The CFP© in me thinks people should wait, the reality and the human being part likes to see people reclaim control of their life. Hopefully, after some planning, you can make a decision that is right for you.
If you could choose between $1,000,000 today or a penny that would double every day which, would you choose? As you might guess the Magic Penny is a better deal.
So, what does that have to do with your 401(k)? It is an example of compound interest. Little things you do early in your working career have a big impact on your savings when you are ready to retire. I ran an example of someone who started saving at the age of 25 through age 65. If they invest $10,000 each year and get a 6% return over the 40 years you would have a portfolio valued at $1,547,619.66. That would be from a total investment of $400,000.00 over the 40 years.
If you look at what each decade of investing would be worth it is clear the earlier you start the better off you would be. Each decade you would invest $100,000.00 every 10 years. After 40 years the money you saved between 25 and 34 would be worth $757,037.79 which equals 48.9% of your account. The money saved from 35 to 44 would be worth $422,725.95 which equals 27.3% of your account. The money saved from 45 to 54 would be worth $236,047.96 which equals 15.3% of your account. The money saved from 55 to 64 would be worth $131,807.95 which equals 8.5% of your account.
Never underestimate the value of time and consistency. I’d never tell you to not try to save more or take advantage of the Catch Options, but as you can see in the tables below if you get to keep doing the right thing the magic of compounding will do it thing.
The Magic Penny
| Days | Value | | 1 | $0.01 | | 2 | $0.02 | | 3 | $0.04 | | 4 | $0.08 | | 5 | $0.16 | | 6 | $0.32 | | 7 | $0.64 | | 8 | $1.28 | | 9 | $2.56 | | 10 | $5.12 | | 11 | $10.24 | | 12 | $20.48 | | 13 | $40.96 | | 14 | $81.92 | | 15 | $163.84 | | 16 | $327.68 | | 17 | $655.36 | | 18 | $1,310.72 | | 19 | $2,621.44 | | 20 | $5,242.88 | | 21 | $10,485.76 | | 22 | $20,971.52 | | 23 | $41,493.04 | | 24 | $83,886.08 | | 25 | $167,772.16 | | 26 | $335,544.32 | | 27 | $671,088.64 | | 28 | $1,342,177.28 | | 29 | $2,684,354.56 | | 30 | $5,368,709.12 |
Growth of $10,000 at 6% over 40 years
| Years to go / invested | Deposit | Value of Deposit after 6% return | Years to go / invested | Deposit | Value of Deposit after 6% return | | 40 / 1 | $10,000.00 | $10,000.00 | 20 / 21 | $10,000.00 | $32,071.35 | | 39 / 2 | $10,000.00 | $10,600.00 | 19 / 22 | $10,000.00 | $33,995.64 | | 38 / 3 | $10,000.00 | $11,236.00 | 18 / 23 | $10,000.00 | $36,035.37 | | 37 / 4 | $10,000.00 | $11,910.16 | 17 / 24 | $10,000.00 | $38,197.50 | | 36 / 5 | $10,000.00 | $12,624.77 | 16 / 25 | $10,000.00 | $40,489.35 | | 35 / 6 | $10,000.00 | $13,382.26 | 15 / 26 | $10,000.00 | $42,918.71 | | 34 / 7 | $10,000.00 | $14,185.19 | 14 / 27 | $10,000.00 | $45,493.83 | | 33 / 8 | $10,000.00 | $15,036.30 | 13 / 28 | $10,000.00 | $48,223.46 | | 32 / 9 | $10,000.00 | $15,938.48 | 12 / 29 | $10,000.00 | $51,116.87 | | 31 / 10 | $10,000.00 | $16,894.79 | 11 / 30 | $10,000.00 | $54,183.88 | | 30 / 11 | $10,000.00 | $17,908.48 | 10 / 31 | $10,000.00 | $57,434.91 | | 29 / 12 | $10,000.00 | $18,982.99 | 9 / 32 | $10,000.00 | $60,881.01 | | 28 / 13 | $10,000.00 | $20,121.96 | 8 / 33 | $10,000.00 | $64,533.87 | | 27 / 14 | $10,000.00 | $21,329.28 | 7 / 34 | $10,000.00 | $68,405.90 | | 26 / 15 | $10,000.00 | $22,609.04 | 6 / 35 | $10,000.00 | $72,510.25 | | 25 / 16 | $10,000.00 | $23,965.58 | 5 / 36 | $10,000.00 | $76,860.87 | | 24 / 17 | $10,000.00 | $25,403.52 | 4 / 37 | $10,000.00 | $81,472.52 | | 23 / 18 | $10,000.00 | $26,927.73 | 3 / 38 | $10,000.00 | $86,360.87 | | 22 / 19 | $10,000.00 | $28,543.39 | 2 / 39 | $10,000.00 | $91,542.52 | | 21 / 20 | $10,000.00 | $30,256.00 | 1 / 40 | $10,000.00 | $97,035.07 |
| Year Invested | Deposits | Total Value | Growth | | Years 1 – 10 | $100,000.00 | $757,037.79 | $657,037.79 | | Years 11 – 20 | $100,000.00 | $422,725.95 | $322,725.95 | | Years 21 – 30 | $100,000.00 | $236,047.96 | $136,047.95 | | Years 31 – 40 | $100,000.00 | $131,807.95 | $31,807.95 | | Totals | $400,000.00 | $1,547,619.66 | $1,147,619.66 |
Welcome back to Powering Your Retirement Radio. I am Dan Leonard your host. You can take a few steps to set yourself up for 401k success.
You can take these steps to maximize your 401(k) regardless of your age.
Steps:
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Enroll! Stop procrastinating - the sooner you start, the bigger your balance will be later.
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Contributions
- Start with any amount, just start
- Annual Automatic Increase - most plans allow you to automatically increase your contribution rate annually. Time it to when you get your annual pay raise. For my PG&E clients, that would be on your March check.
- Shoot for 10% or 15%
- Don’t overdo it when you are younger - under 35-year-olds usually have competing goals like getting married, having kids, and buying a home. Target maxing out your match.
- Prioritize savings once life goals are achieved
- Take advantage of the Catch-Up Contribution amounts at age 50.
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Matching - Try to contribute enough to maximize company matching.
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Spillover - If you can afford to contribute more and the plan allows for excess contributions.
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Mega-back Door Roth - In 2021, you could have contributed $58,000 plus the 6,500 Catch-Up contributions (for those 50 and older). The $58,000 includes your elective deferral, company matching, plan allocations of forfeitures, and after-tax employee contributions (spillover).
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Higher Wage Earners - take advantage of when you hit the wage base for Social Security of $147,000(2022) and the 6.2% Social Security tax stops being deducted. Increase your contribution rate for the rest of the year.
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Other:
- Start early and be consistent.
- Use the Catch-Up contribution when you reach 50.
- You control how much you save and how long.
Until the next Episode, stay safe!
For more information visit the podcasts website: https://poweringyourretirementradio.com/set-yourself-up-for-401k-success/
Welcome back to Powering Your Retirement Radio. I am Dan Leonard your host. In the last episode on Top 10 Tax Facts, you should know, I got a fair amount of downloads and got more comments than normal. In this episode, I thought I address how to read your tax return.
As a financial advisor, I get asked, Why do you need to see my tax return? When I ask for documents.
As a tax preparer, I get a different question, did I give you everything? The answer to this is how should I know? Did you fill out the tax organizer completely? Which is usually followed up with I have to? Yes, if you want me to know for sure.
Before you turn in your documents to your tax preparer, pull out your prior year’s return. It will tell you if you have forgotten anything.
I need to make a confession, prior to becoming an Enrolled Agent and starting to prepare returns for clients, I was a horrible tax client. I didn’t fill out organizers, I never was sure I had all my documents. So, this episode reminds me of how I have learned to organize tax documents.
I want to walk you through your 1040 form which will tell you what documents you should have.
If you want extra credit print out Form 1040 and take some notes.
How to read a tax return On the top half of page one, you have the following
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Filing Status
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Address
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Crypto Question - This is important.
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Standard Deduction
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Dependants
All are straightforward. As Preparer, I need to know about your relationship status, where you reside, if you own any cryptocurrency, if there are any issues with your deductions, and if you have dependents. As a financial advisor, I know how many people I am planning for, that you are potentially an aggressive investor if you have a mortgage if you have kids, or dependents to include in the planning. Either way, I know a fair bit without even seeing a form.
The income numbers Let’s look at the bottom half of page 1.
Line 1 - W-2 go here - You have a job and you are an employee
Line 2 - 1099-Int or a Consolidated 1099 - You have savings that are earning interest = Sch B
Line 3 - 1099-Div or a Consolidated 1099 - You own investments that pay dividends = Sch B
Line 4 - 1099-R - You rolled over a retirement account or you took a distribution from a retirement account or it goes on Line 5
Line 5 - 1099-R - You collect on a pension or an Annuity
Line 6 - SSA-1099 - You are collecting Social Security
Line 7 - You sold an investment or a property. The Capital Gain is reported on a 1099-B or 1099-S or a Consolidated 1099
Line 8 - This is other income. See Part I of Schedule 1 - State Refunds (1099-G), Jury Duty, Alimony, Unemployment, and since the Olympics are going on your Olympic, ParaOlympic Medals, and USOC prize money, too.
Line 9 - Phew - it is just math
Deductions Line 10 - Now Adjustments to income - Part II of Schedule 1 - Educator Expense, Self Employed Health Care Expense, Self Employment Tax, Student Loan Interest, IRA Deductions, and of course the nontaxable amounts of your Olympic, ParaOlympic Medals, and USOC prize money.
Line 11 - More Math
Line 12a - Schedule A Deductions or Standard Deduction
Line 12b - If you claim a Standard Deduction you can claim up to $300 in Charitable Deductions
Line 12c - Math
Line 13 - Qualified Business Deductions (QBI) for Business Owners
Line 14 - Math, again.
Taxable Income Line 15 - Math and this is your Taxable Income
On to page 2
Line 16 - Tax Calculation, the painful math
Adjustments Line 17 - Come from Part I of Schedule 2. Alternative Minimum Tax and Excess Advance Premium Tax Credit
Line 18 - Math
Line 19 - Nonrefundable Child Tax Credit
Line 20 - Schedule 3 - Credits and Payments. Dependent Care Credits, Residential Energy Credits, Adoption credits, etc.
Line 21 and Line 22 - More Math
Line 23 - More Taxes, like additional taxes on HSA distributions, accumulated distributions from Trust, Golden Parachute payments. (Not as common for many)
Line 24 - More Painful Math - Your Total Tax
Taxes you have paid already Line 25a - W-2 Withholdings
Line 25b - 1099 Withholdings
Line 25c - Any other form showing withholdings
Line 25d - Totals
Line 26 - Total of your Estimated Tax Payments
Line 27a - Earned Income Tax Credit
Line 27b - Noncombat Taxable Pay Election
Line 27c - 2019 Income which may qualify and expand credit due to Coronavirus
Line 28 - Refundable portion of Child Tax Credit or Additional Child Tax Credit
Line 29 - Form 8863 - American Opportunity Tax Credit
Line 30 - Recovery Rebate Credits (Stimulus Checks)
Line 31 - Part II of Schedule 3 - Extension Payments, Excess Social Security, Health Care Tax Credits
Line 32 - Math
Line 33 - Math - Your Total Payments
Refund or Tax Due Line 34 - The happy line, which is the amount of your refund if you are getting one
Line 35 - What do you want to be refunded
Line 36 - What do you want to pay toward next years taxes
Line 37 - The unhappy line, What you owe.
Line 38 - The insult line, any penalties for underpayment
At the bottom of page 2
3rd Party Designee, who you’ll allow to talk to the IRS on your behalf.
Signatures, sign your return
Paid Preparer, if you paid someone to make sure their information is there, otherwise don’t pay them.
So as a preparer, if I have your return from last year, I can tell what you had on your return based on what lines are filled in. Without the schedules, I may not know everything, but I know where I need to ask more questions.
Recap As a Financial Planner, with Lines 1 to 8, I have a pretty good idea if you have investment assets or are drawing income from retirement accounts. If all you have is a 401k I can see that from your W-2. Line 12 gives me a hint if you own or rent your home. Line 13 tells me if you have a business, even if it is a side hustle.
Page 2 of Form 1040, lets me know about the credits you collect, and where your withholdings are coming from. Finally, if you are retired and you owe, I know I can help by increasing your withholdings or lowering them if you get a big refund.
So, if I am doing your return do I need you to fill out the organizer? If I am trying to build a financial plan do I need you to answer a bunch of questions? In both cases, probably not, but it does make sense for you to give the professionals you are paying to help you as much information as possible.
Reality All preparers and planners know most people are stressed about taxes and planning, having a copy of your return makes our job a little easier and allows us to ask intelligent questions.
That is it for this episode, and know you know why planners and preparers what to see your return. In true Jerry McGuire fashion, it helps me help you!
Until next time, look for your tax documents, find your 2020 return, be well and stay safe!
Visit my podcast website for more information:
https://poweringyourretirementradio.com/how-to-read-your-tax-return
Welcome back to Powering Your Retirement Radio. This week I am taking off my Investment Advisor, Certified Financial Planner™ hat, and putting on my Enrolled Agent, Marathon Tax Planning hat. I am going to share 10 Tax Facts for 2022.
I recently attended a 2 day, 16 hours of continuing education, tax update session for my tax practice. To say it was fun would be a lie, informative, and lots of good information without a doubt.
Western CPE was the firm offering the classes. The instructors Sharon Kreider, CPA, Karen Brosi, CFP®, EA, and Mark Seid, EA, CP, USTCP, are some of the smart people I know in the tax world. They all also are practicing preparers in addition to instructors.
It is impossible to recap the 16 hours in one podcast so I thought I would pull out a Top Ten List of things many people would or should want to know about.
Top 10 Tax Facts 1) IRS overwhelmed by calls – 90,000 calls a minute
2) IRS Enforcement is back – Letter usually asks for a reply in 30 days, it is taking them 60 days to sort their mail.
3) 3rd Round of Stimulus in March of 2022 – Reporting this correctly, IRS not making adjusts for taxpayers this year
4) Child Tax Credit was increased in 2022, but there is a Double Phase Out to help confuse matters. The advances will be reported on IRS Letter 6149. The CTC Advance will cause problems for divorced parents that swap child deductions each year.
5) Child and Depend Care Credit was increased. If you have more than one child the new total does not have to be spent evenly.
6) Medical Expense Deductions on Schedule A were permanently lowered to 7.5% of AGI. PPE qualifies for Medical Expense, and yes, hand sanitizer counts.
7) Student Loan Tax-Free Forgiveness extended through 2025
8) Virtual Currency is receiving increased scrutiny. If you exchanged currency from one coin to another, that is reportable. If you received currency without paying for it, that is a taxable event.
9) Have you moved? Update your address with the IRA on Form 8822 or Form 8822-B for a business
10) Set up an account on IRS.gov, it will establish an ID.me
Bonus
FBAR and FATCA don’t forget to file if you have accounts outside the US.
Please listen to the episode to hear more about each topic or click on the links in this post to read more about the different topics.
Thank you for listening, talk with you again soon. Until next time stay safe.
For more information please visit the podcasts website: https://poweringyourretirementradio.com/10-tax-facts-for-2022/
Hello, welcome back to Powering Your Retirement Radio. I'm your host, Dan Leonard. And this week we're going to look at 7 items to review to make sure you're starting the year off strong financially and on track for a great year.
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401k contributions Determine how much money you want to save for the year. The actual dollar amount. Divide that amount by your annual salary, or salary plus bonus, if bonuses are included(They are not at PG&E, base salary only). The answer is the percentage you need to save to reach your goal.
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Tax Withholdings Determine what your annual income will be. The most common way is to multiple your first paycheck of the year by however many checks you will receive for the year(4, 12, 24, 26, 52 are the common options). If married add your spouse's income to your own. Pull up your Federal and State (CA) Tax Tables, reduce your taxable income by your deductions and calculate your tax liability. Divide the tax liability by the number of paychecks, compare that number to what was withheld on your check. This is not foolproof but should give you an idea if you are on track. If you still have questions, you can ask me questions HERE.
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Beneficiaries & Estate Plan Check your beneficiaries on all your accounts and in your will and trust documents. If you, a parent or a loved one, had a baby, passed away, got married or got divorced, you may have some updating to do.
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Subscription Billing Everyone gets an automatic renewal from time to time. In today's digital age it is hard to keep track of every payment. Pull 3 months' worth of receipts and see what you can do without. Or use a service like Privacy.com that lets you stay in control of what can be charged.
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Paying Down Debt Paying down debt can be difficult. There are lots of ways to do that, but Dave Ramsey has a pretty straightforward way to do this. Watch this short video to hear it from Dave himself.
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QCDs (Qualified Charitable Distributions) If you are 70.5 years or old and giving to charity, you need to learn about Qualified Charitable Distributions.
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Review Your Social Security Statement Go to SSA.gov and download your statement. Review how much you are on track for.
Have a great start to your year. I look forward to helping you over the course of the year understand financial concepts and ideas that will help you prepare for retirement the right way.
For more information, you can visit the podcast website HERE.
Hello, and welcome back to Powering Your Retirement Radio. I'm Dan Leonard your host. This week I'm gonna go back to square one. After doing some consulting with some other podcasters and their podcasts, they said, looking through your catalog of episodes, you don't really see anything on you. Every one of them had some kind of an about me type of episode. I figured here on New Year's Eve, you'll probably be sitting there watching the ball drop, listening to this, and just having a grand old time. Happy New Year, have a great evening. And, if you listen to the whole episode, God bless you.
Background We'll just start with some basic background facts. I've been in the industry for over 30 years. My first job in the financial service industry was back in 1988 while I was still in college. I had a chance to work for Merrill Lynch on the floor of the American Stock Exchange, which was exciting and, meaningful for me since both my grandfather and great-grandfather we're members of the American Stock Exchange. So that was a great thrill to get to walk in their footsteps.
Since graduating college, I've worked as a financial advisor in New York, in Canada, and in California, I've had the opportunity to live in five states in two countries. In addition to being an advisor, I've also worked, worked in the financial services industry in the mutual fund and annuity area as what they call a wholesaler, which is the representative for the individual products. If you think of mutual funds like Franklin funds, Fidelity funds, or American funds, they all have sales forces that their sole job is to market to financial advisors to raise brand awareness and like anything else, the things that get on the end caps at a grocery store or Home Depot don't get there magically.
There are product representatives that are in there talking to the store manager. You get this on the end of your aisle and you'll sell more and your store revenue will be up. Wholesalers use the same concept, except we were fighting for the mental headspace of financial advisors. And even to this day this still persists, a lot more of that is done virtually these days. But the funds that I put in client portfolios, the representatives that I know make sure we know everything that's going on.
I personally use an outside third party to help me build those models. So I basically get support from the reps after we've sold the product. They're not proactively promoting their product to me, they're doing it more in a support role, but there are different ways that different people run their business. So I've been both retail, meaning client-facing, and then wholesale, institution facing in my career. On the institutional side, you know, I've done presentations to literally hundreds of brokers at one time in conference format, down to individual meetings with clients and advisors. At the same time, I've also been an instructor where we would go into offices and offer continuing education. I've lived, it. I've worked. I've been in every facet of the financial industry, as far as providing advice, whether it be coaching, the people, giving the advice, giving the advice or, dealing with the end-user in the client space.
During that time, I've actually had the opportunity to work in 20 different states. I've met with thousands of advisors. I've been in hundreds of brokerage offices, primarily in my career, early on when I was doing what I was working in, the, what is called the wirehouse environment, which would be the Merrill Lynch Smith, Barney, formerly PaineWebber, those type up of firms on a national level.
When I was in the mutual fund industry, I've worked with over 20 different actual portfolio managers, running individual mutual funds. I've gotten to see how several different managers run their businesses. Probably the two biggest names would be, Louis Navieller out of Reno. He was a manager for one of the companies I worked for in the late nineties and then Charles Brandis in La Jolla, which does international investments and value investing. I've had chances to work with those people individually when they'd be out to travel. On a roadshow, we would go to offices to talk about their style of investing. It's been a fun career because there are opportunities where, I'm sitting down with clients like I do today, helping 'em with their personal financial situation. And then on the other end, being at a big conference where you're presenting to hundreds of advisors, and you've got one of the top money managers that just got off of a call with CNN, driving around with you in your car, talking about the markets with you.
Concepts and Principles Disciplined Process
Focused Approach
Make it Understandable
Limit Decisions
3 H's Be Humble
Be Human
Be Honest
Why you? Come for Performance
Stay for Service
Lost Trust or Ignored
What is important The number one rule, I think all people have to keep in mind when it comes to investing, is that investments are important. The money is important because that's what you're gonna live on. But ultimately it's your family. It's your health and your happiness. Your wellbeing is the most important part of it. So if you're in a relationship with an advisor and that's suffering because you're concerned about stuff and things aren't working, that's the reason to consider looking for a new advisor. And that goes if you're one of my clients or looking to be one of my clients? If you're in a relationship where you never hear from your advisor and you don't feel like you can get answers from them, then you need to look for a new advisor.
So that's where I try to make sure there's lots of outbound communication from me to who my clients are now, not all clients are gonna engage in it all, but that's on their end. I'm making sure that they know what we do and why we're doing it. So that's a little bit about me, my background, some of my philosophies, and thoughts on the market, hopefully, that was useful. Maybe even in an, as always you can leave questions on the website@poweringyourretirementradio.com and ask a question. If there's a question about something I've said today or in the past, I'm happy to do that. And I just wanna wish everybody a happy new year. And I look forward to talking with you in 2022. Thanks so much, stay safe until next time.
For more information please visit the Podcast Webpage.
Powering Your Retirement Radio Episode 20
In this episode, I will walk you through a year-end checklist. There are checklists everywhere in the financial press and on social media of things you should be doing to lower taxes, lose weight, save money, and anything else that people want to do.
Most people take a quick look and say to themselves; I know that, or I have that covered. Thankfully, many people do, but unfortunately, many also don't. So I will walk through such a checklist and give you some insight into why these lists don't ever seem to change. Still, you hear the horror stories of a widowed second spouse that doesn't get their spouse's retirement plan, because inexplicably the spouse never updates a beneficiary agreement to reflect that they divorced and remarried.
Or the person whose parents passed away and never took their Required Minimum Distribution (RMD), the child inherits the account and gets a letter from the IRS demanding payment of the penalties for not taking the RMD. The penalty is 50% of the amount not taken.
Finally, the person who gets a surprise at tax time because they never set up withholdings on Social Security or IRA distributions when they retired receives a nasty surprise.
These examples may all sound a bit ridiculous, but I assure you every year, I come across someone that had a problem that a simple review could have to help them avoid. So, I implore you, talk to your financial advisor or tax professional to discuss what has changed over the last year, or even what you know will change in the year to come and avoid a surprise.
When do you want to know about it if you have a problem? My guess is as soon as possible.
For more information visit the podcasts website: https://poweringyourretirementradio.com/year-end-checklists/
Welcome back to Powering Your Retirement Radio. Today, we're going to continue our conversation about college planning and colleges in general with my good friend, Dr. Bryon L. Grigsby, who I've known since we were high school classmates, college roommates, and many other things throughout our lives. Bryon is the President of Moravian University in Bethlehem, Pennsylvania, and he is one of the few presidents is also the President of his own Alma Mater. Moravian was founded in 1742. It's the sixth-oldest school in the country. It was the first to educate women. And it's been thriving since Bryon became the President back in the summer of 2013. So with that welcome back, President Grigsby. Why don't you tell people that maybe didn't hear our last episode, just a bit of yourself and Moravian?
Start of Interview
President Bryon L. Grigsby:
It's great to be here. Dan is a treat to run our Alma Mater, and I'm not quite sure when we were tearing around the campus. Either one of us thought that we'd be in the roles we're in right now, but it's a joy to be at your Alma Mater. It is the sixth oldest college in the nation. It's in Bethlehem, Pennsylvania. We have one of the only Revolutionary War hospitals on the campus, and we're about to get UNESCO world heritage designation, which will be the second a university in the nation to be a world heritage site, the University of Virginia being the other one. So it is a place of very historic buildings. My house, the President's house, comes with a desk that was George Washington's. And so you are when you're wandering around the streets of Bethlehem, truly wandering around in the footsteps of Benjamin Franklin, George Washington, and Lafayette. So it's a neat place to be. The campus is a Division III sports campus. We have about 2,600 students on the campus. We have about 25% of our students are graduate students and primarily in the healthcare and business industries. The other 75% are undergraduate students and all sorts of liberal arts and science and nursing.
Main Points Covered
Four Year School vs. Community College
- Risk vs. Reward
Value of a Liberal Arts Education
- Training people for jobs that don't exist, yet
What does success look like in college?
- Relationships with Faculty and classmates and taught by professors, not grad assistants
Dan:
As an aside for the listeners, I've got to tell you the story of the George Washington desk. I was back at Moravian for Bryon's inauguration, and I heard the story about George Washington's desk. Later we were back at the President's house for a reception. And I asked him, where is this George Washington's desk? And Bryon looked me square in the eye and said, you're leaning on it, which I promptly got off of and wondered why there wasn't a velvet rope around it. The things you learn after you graduate from college. Anyways, one of the things that is an issue here in California, and we talked about it a little bit in the last episode about affordability, is kids that aren't quite ready for a four-year school. Here the answer is DVC - Diablo Valley College. It's the community college much like North Hampton in Pennsylvania or Orange County Community College, where we grew up, and that's in New York, not California for all my California listeners. Should I go to a four-year school and figure out if I like it or not, or should I do two years in community college? Let's start with that.
President Bryon L. Grigsby:
The lowest level of risk financially is to go to a community college. If your child doesn't know academically, what they want to do, and financially you're having difficulty affording college education, community college is a very viable opportunity. If a student is not successful at community college, they'll have maybe a couple of thousand dollars worth of student loans. As opposed to, if they're not successful at a state university or even an independent college, you could have $10,000 or more in student loans and no degree to be able to help pay down those loans. If you look at when people talk about the student loan crisis, everybody's eligible by the federal government. When you do a FASFA to get a loan from the federal government, it's guaranteed from the federal government. You don't have to put up any collateral for it, but paying that loan back without a college degree can be nearly impossible.
If you look at the default rates of all the student loans, they're all in $10,000 and less that's because a person who has $150,000 probably is going to med school and will be able to pay that loan back after they graduate. But the person who has $8,000 and did not get a college degree of any kind associates or bachelors can't afford to pay back that loan. And so that's where all the defaults come in. So if you are financially at risk and academically at-risk, community college is a great opportunity. It is an ability to very, cost-effectively see if you can make it in college courses where the downside comes in is if you academically know that you can make it in college, you're confident that your academic, your college material going to a community college may set you back in your degree, completion in programs such as nursing and engineering and computer science, because, the four-year schools have programs where you're going to get basic level information for your major in your first two years.
So that's the only risk you have is that if you have a career path that you really want to do in health professions, in computers and technology or an education, and, you know, you can make it, your college material you'll do fine in college. Then the best avenue is to go into a four-year school so that you can graduate within four years. If you are wondering whether college is right for you or having significant issues about paying for college, then community college, that gives you the ideal situation. And, students transfer from North Hampton here. They become highly engaged in our campus as a transfer in for the last two years. Sometimes if they're in nursing or computer science, they may have to take an extra semester to complete out that degree. But even at that level, it's still financially better for them if they're having difficulty paying for the finances.
Dan:
Obviously, Moravian's a liberal arts college. And we had talked about it a little bit before we got started today. I thought it was an interesting comment. In liberal arts school, you're training people for jobs that don't exist. Talk to me a little bit about the value of liberal arts versus going in with like, just I'm going to be an engineer, and this is all I'm going to do.
President Bryon L. Grigsby:
Well, Moravian's proud of saying that it intentionally combines the liberal arts with professional programs. So, in my experience, I find two kinds of students have Moravian. I find the student who has known since they were eight years old exactly what they want to do. So I want to be a doctor. I want to be a veterinarian. I want to be a lawyer. I want to be a nurse. I want to be an occupational therapist. And those students come in, and they have a path. They know what that path is. They want to go. They want to go straight through that path to get their degree. Where the liberal arts benefit them is liberal arts are what we call the soft skills. So I want at the end of a college career, I want a student to be able to critically think, to work well as a team member, to be a leader, to be ethical, to be able to use quantitative, qualitative analysis, to arrive at a decision, to understand and use technology effectively in their disciplines and their majors, and to be a global citizen that understands the value of diversity.
Those are the components of a liberal arts college. Those components are transferable across every career possible. So, I may want to be a veterinarian, or I may want to be a medical doctor. And after four or five years of doing that, I decide I want to move into finance. And I do a career change because you have all these liberal arts skills. You can make that switch into a different career. Statistics will tell us that children today who are going into college will have four to five different careers over their lifetime. So, the value of the liberal arts college, even if to the student who knows exactly what they want to do right now, most likely across their lifetime, they will switch careers and need to rely on those liberal arts skills so that they can manage moving into careers back in the day when you and I went to school, everybody wanted to be a web page designer.
The internet was just starting, and all these tech schools created eight-month web page designers. Well, someone eventually created a software program that was easier just to do the software program than hire the guy for $60,000 to do your webpage. And they all lost their jobs because they didn't have all those other soft skills. So that's one kind of student that knows exactly what they want to do and the benefits of still getting a liberal arts degree, even in their professional programs, so that they can switch careers seamlessly for the student who comes into Moravian. And I would say, this was me who doesn't know what they want to do. The liberal arts provide a sampling of a variety of different careers that are possible. I had five different majors at Moravian. I went from a physics major to a math major, to a computer science major, to a criminal justice major, to an English major.
The liberal arts allowed me to think about different careers, and if I wanted to do those for the rest of my life, and then settle on the one that I wanted to do. The liberal arts right now, as you said, Dan, not only are we training students to have four or five different careers over their lifetime, we are also training students for careers that will exist in four or five years or ten years. Think about what's happening with Tesla and automated cars as automated cars come out and electric vehicles. There's going to be this mass need for technicians to build charging stations, repair stations. Those careers don't exist yet. They will in five or ten years as more and more vehicles become autonomous. The skills of the liberal arts will allow people to learn how to learn again, to learn a new career. And that those are the benefits of not just going to a technical school where you're just going to learn how to be a webpage designer. You're just going to learn how to be an engineer. You're going to learn how to just do one thing. You want to go to a place that will allow you to learn that and create all the other skill sets that you're going to need to be more diversified and more able to change careers.
Dan:
And I can attest, I was there for at least three of the major changes. I know which class it was that made him an English major. And Bryon is still good friends. How has Dr. Burcaw
President Bryon L. Grigsby:
And he's good, 92 years old, still learning quantum physics and other things.
Dan:
I was in that class. I went a different route, but it worked for Bryon for sure. And that, that kind of is a good lead-in, I think to our next question, which is, what do you think success looks like for someone at college? And I bring that up because, you know, I know the answer you gave me earlier. I'll let you tell the people, but I know who one of those people is for you.
President Bryon L. Grigsby:
It is actually pretty simple. It's been studied by Harvard for over 50 years. Success is that you have out of college, uh, one or two, three or four close friends, people that you truly are your lifelong friends and one mentor, and that mentor can be a faculty member or a staff member, but someone that you rely on to mentor you through your college career and beyond. I've said that person is Dr. Burcaw for me. And you know, Dan's been a lifelong friend. We were friends before college, but we were roommates in college. So it's really not rocket science for having a successful college career, two or three strong friends, and a mentor. That's it. The chances are of that happening at a small college are way greater, particularly in the mentor program. When I started out my career teaching at the University of Connecticut, I had 450 students in an upper-division Shakespeare class in a large rake auditorium.
There was not any way to get to know any of the students. That was markedly different than my Chaucer class at Moravian with four students at eight o'clock, Monday, Wednesday, Friday, where we had breakfast, the last class at the faculty member's house, getting the mentorship part is much easier at small independent colleges than it is at large state universities. For parents, the one thing I would say is to visit lots of college campuses, ask your child, do you see yourself fitting in here? Do you see yourself walking around and seeing people with who you could be friends with? Do you see yourself sitting at a table in the cafeteria, and you would have friends here? That's going to be the key for finding a place where they feel they fit and belong?
Dan:
I can attest to that as a, again, back to Bryon's inauguration. When he talked about his dreams to become present and all of that, I got to remind him that I was the first student he ever recruited to Moravian because I was a transfer student to Moravian. And I know that everything Bryon just said about, do you see yourself fitting in at the school I was at? I definitely did not. And when I would come to visit Bryon and Moravian, I did. And by the end of my first semester, I had already applied and was ready to go for my first semester, sophomore year. Bryon was a good recruiter then and is still doing a great job for the college. Now, why don't we wrap up with this one, Bryon? You kind of touched on it a little bit there, but you might want to hit a few other points—just some of the benefits of, you know, a school like Moravian University. I won't use one that's in the same city. So, let's say a school like the University of California, Berkeley, or Stanford, or one of the schools where you've got thousands and thousands of students there versus hundreds in a class like in the entire class, not just one that you're taking, but like everybody that's a freshman. There are what now? 500 at Moravian
President Bryon L. Grigsby:
Well, we're about 450 incoming first-year students. And then about 150 transfers and 50 international students. It's what the student wants essentially. And, and I get back to, you know, mom and dad who are paying the bill has to think about the value of the education. I personally don't see a whole lot of value in 40,000 students and focused on Division I, football, or Division I basketball. That's not, to me, the reason you should be going to be educated. There are many people that love that. And, there are 4,000 institutions of higher education in the United States. I guarantee you, if you want to go to a Buddhist school, there's a Buddhist school. If you want to go to a Catholic school, there's a Catholic school. You can find any mission possible in higher ed. But I find that the places that truly transform students are the small independent colleges where they have less than 5,000 students.
You're taught not by a graduate assistant, which is the case for almost all state universities and research universities. The first two years of undergraduate education is taught by a graduate student who has not finished their Ph.D. I was one of those students that taught other students when I was getting my doctorate. There's value to that. But there's also value to having a full professor who has 20 years of teaching experience teaching your child, freshmen writing. That's the kind of places that small independent colleges have at a place like Moravian. You most likely in your four years there we'll have a dinner at the President's house. We cycle through all the athletic teams and all the clubs every other year. So, if you're even remotely engaged at the campus, you're on a, in a club or you're in a sporting, or you're an athlete.
You will get a dinner at the President's house with the President. I guarantee that's not happening at Berkeley. There are just too many students for that to be occurring for some students. That's not important. But for me, that was, it was life-changing for me to be able to go over to Bob Burcaw's house and have dinner with him and Dottie and become part of the family, or be known on campus by your Faculty on a first-name basis, not a number it's not right for every student. I realized that there are students when I said I was at UConn. They wanted nothing to do with me. They simply wanted to go back to what they were doing together as a group of adolescents. I just think if you're paying a lot of money for this education, you want to get the most out of it. And, at small independent colleges, you know, the faculty member is by your elbow, helping you with your skills that are going to be so important for your career.
Dan:
Fantastic. I think that's a great way to wrap up today. I want to thank you for taking some time out with me to do the last two episodes for the listeners on the Powering Your Retirement Radio website. There is an ask a question button. If you just click on that, you can leave a voicemail or type in a question. If you have one, as I said, if we get overwhelmed, maybe we can have Bryon come back and answer a few of those. But, I will work with Bryon to try to get answers to any of the questions that do come in and get back to you with a response. So, I sincerely appreciate your time, Bryon. I know you're a busy guy, so we'll let you get back to, uh, the important business of running a school and, uh, for my listeners, uh, until next episode, stay safe. And, uh, this should have just come out the week after Thanksgiving. So I hope everybody had a great Thanksgiving and a good holiday season. Thank you so much.
President Bryon L. Grigsby:
Thanks, Dan
For more information, visit the Podcast Episode page here:
https://poweringyourretirementradio.com/a-liberal-arts-education-what-college-success-is
Welcome back to Powering Your Retirement Radio. Today, we're going to talk about college planning, and I've been looking forward to this show because I get to interview my lifelong friend and college roommate, Dr. Bryon L Grigsby. Bryon happens to be the President of Moravian University in Bethlehem, Pennsylvania. Bryon is one of the few university presidents that is the President of his Alma Mater. Moravian was founded in 1742. It's the sixth-oldest school in the country. It was the first to educate women, and it has been thriving since Bryon became President in 2013. So with that, I want to welcome President Bryon Grigsby. Bryon, why don't you take a second to tell the listeners a little bit about yourself and Moravian.
President Bryon L. Grigsby:
Hey, Dan, it's great to be here. Moravian is a unique university. It has about 2,600 students. As Dan said, it's the sixth oldest in the nation. Harvard, Yale, Princeton, College of William and Mary, St. John's Annapolis, and the University of Pennsylvania are the ones that precede us. We were the first school founded to educate women. I've been the President at my Alma Mater for nine years now. I'm in my ninth year. We built a lot of healthcare programs over these past few years. We have multiple doctoral programs, including the doctorate of physical therapy, a doctorate of nursing practice. We have occupational therapy, athletic training, a very vibrant nursing program, and an incredibly vibrant undergraduate liberal arts college.
- Affordability of College
Average tuition of $54,000, average student pays $26,000.
- Value Proposition
Apple MacBooks & iPads for every student, small class sizes, full-time faculty, not grad student teachers.
- US News & World Reports – College Metrics
Ignore the glamour numbers and look at Freshman retention rates and four-year graduation rates.
See the details on the website Blog page or listen to the show today.
Interview Transcript:
Dan:
Fantastic. Thank you, Bryon. So, as I think we've talked about, but just so you know, a bit of the listener, primarily most of the people listening to the show today, will be in one of two areas. They either work for PG&E, our power company ranging from the guys out in the field to people in the office, doing everything it takes to run a company. The other is Kaiser Permanente, which you're probably familiar with them as a healthcare provider. But, again, most of those people here in Northern California do have some clients in other parts of the country. And what I find is when I'm talking to parents and grandparents, there are similar themes that come up in almost every conversation. So, I want to address a few of those and get your take on what you tell a parent that's about to send their child to Moravian as far as you're concerned about X, and this is what we can do. The first one I think goes without saying for many people is how do I afford college today? You look at the predictions of a newborn baby today, and it's, you might as well take the ride on Elon Musk's rocket and call it a day. And it would be the same as an education, but I know from our own experience at Moravian that it was affordable, and we could get through it. So how do you ease parents' concerns there?
President Bryon L. Grigsby:
Well, one thing that is a challenge for private schools is that independent schools like Moravian, which are not controlled by the federal government or controlled by state governments, have sticker shock. If you look at Moravian, our sticker shock is $54,000 a year for tuition. The average student pays around $26,000 a year. So that gives you some idea. We have a $150 million endowment that spins off scholarship money. We raise about $6 million a year from alumni like you and me that pay it forward. And that offsets the next generation. You'll find that many students who apply to these independent colleges will pay less than tuition at a public university. And they're getting a lot more for that. They're getting a lot more in smaller classes, not being taught by graduate assistants but by full-time faculty. So, I would encourage everybody to apply to the institutions that they want to apply to and see what their tuition will be. Please don't assume that the sticker price they see is what they're going to pay because they're going to pay less than that sticker price at almost every independent college and university in the nation.
Dan:
Fantastic. That's, uh, it's good advice. And most people do know how to ask for a bargain.
President Bryon L. Grigsby:
And the public universities do not do discounting in any significant way. So, their sticker price is most likely their sticker price, unless you're in an honors college or something else because they operate by state government regulations. The independents are just that independent, so they can raise money from their alums and redirect it as the alumni dictated to offset costs.
Dan:
Okay, I don't have kids in schools in California, but I know Berkeley and Chico, and a lot of the schools that are state schools here are impacted where, you know, if you don't have over a four-point O, you don't have a shot at getting in. So talk to me a bit about when you're looking at a school and use a term earlier value proposition. When you're looking at a school other than obviously the name, the mascot, the sports teams, all the things that people think about for college, what should a parent, even a student, be thinking about?
President Bryon L. Grigsby:
I think you want to think about what value add any institution is giving you. For example, at Moravian University, we pride ourselves on leveling the playing field and ensuring everybody has technology skills by the time they graduate. We provide every student with a Mac book and an iPad. That's a value proposition that you don't see at many institutions. There are only 16 apple distinguished college campuses. Moravian happens to be one of them in the nation, small classrooms. I talked about this in the last set of comments. You are paying for a faculty member to be at your child's side, working on the skills that will make them successful in life. That's what your dollars are paying for. Do you want to have that in a classroom of 450 students? Or do you want to have that in a classroom of 10? Which one will give you the most significant value add of small colleges and universities like Moravian? They don't have a lot of dollars for marketing. They don't get on national football channels and get to get their brand out there. But from a value-add standpoint, you're getting more time with a professor with a Ph.D. in that area working on your child's skills than any state university with a Division One football program.
Dan:
Now, I know we've talked about this in the past, not on this show, but just in general, I had come across a podcast that was talking about the US News and World Report. You know, where some of the schools ranked some of the historically black colleges, ranked lower, but the studies said, if we gave them a new dorm and a football team and few other advantages, they'd be in the top 10. As lovely as that sounds, one university president of a university will go unnamed because it might be in the same region as Moravian. Still, that school's President was giving out hot sauce to everybody to help increase the name recognition. So what kind of metrics should somebody be looking at other than the ones that all the high school seniors look at the top party schools and all of that, but what should we be looking at?
President Bryon L. Grigsby:
Yeah, I would stay away from the US news and world report rankings. We call the beauty school rankings college presidents have to say whether they like all the other colleges are not like them or recognize them. And they weigh that pretty heavily in the US news world report. Here are the measures. And you can find these measures out on any website colleges, publish them all the time. I would look for a retention rate of first-year students. Moravian's retention rate is 83%. That means that 83% of our students choose to stay with us into their sophomore year. Uh, we have a 70% four-year graduation rate. Most public universities don't get up to 70% until their six years. So that's two more years of tuition and two fewer years of your child working in the workforce. So, there's an advantage to how quickly does the school graduate? The students once they enter the doors? The last thing I would look at is the statistic on how six months after graduation, how many of the employed students are in graduate school? A Moravian is 98% of our students are employed or in graduate school, six months after graduation. You want something as high as that because you're getting the greatest value for your money.
Dan:
Fantastic. Every parent's dream is having a kid with a job six months after graduating from college and maybe not living in the basement. It depends on where they are in the country. I guess quite a few people have moved back with mom and dad during the pandemic. So, I think that's an excellent place to wrap up for today. We're going to continue this interview in our next show as well. So, we're going to break it up into two.
As you know, on the website, you can go to PoweringYourRetirementRadio.com and use the ask a question button. What I'll do is if you have questions from either listening to this show or the next one, if you drop comments in there, if we're overwhelmed, maybe we can convince Bryon to come back for a third episode, but I can also work with him to get some answers. Suppose people have specific questions on that. So that's going to do it for this week's show until our next episode. Stay safe. And we'll talk to you soon.
For more information, visit the Podcast Episode page here: https://poweringyourretirementradio.com/affording-college-what-metrics-to-know/
Welcome back to Powering Your Retirement Radio. In this episode, I will be explaining the MEGA QCD and why the opportunity goes away on New Year's Eve. QCD stands for Qualified Charitable Distribution. Thanks to America's IRA expert Ed Slott for sharing this information in his Fall gathering of his Elite and Masters Elite Groups. I am a member of his Elite Group and find his training incredibly helpful.
What is a QCD? A Qualified Charitable Distribution is available to anyone age 70 1/2 and older. You have to be 70 1/2 when the distribution is done, not just in the year your turn 70 1/2. A QCD can satisfy the need to take an RMD (Required Minimum Distribution). Money withdrawn from an IRA that satisfies your RMD is made on a First Out basis. Meaning if you only want to take out the RMD and take out a portion in February and then decide to take more out later in the amount of your QCD, you can. Still, the first distribution will count towards the RMD, and then other money would come out - meaning you will have pulled out more than you needed to.
A QCD goes from your IRA directly to a charity. If done this way, the entire distribution amount is not taxable to you even though it came from your IRA. You will get a 1099 like usual, so you need to let your tax professional know that you did a QCD to make sure it is reported correctly.
What is a MEGA QCD? A MEGA QCD works just like a QCD, with one exception. Until December 31. 2021, a section of one of the Coronavirus Relief Bills allows you to deduct up to 100% of your AGI. Anyone can take advantage of this. If you are over 59 ½, you can take a distribution from an IRA without any penalties, but you have to pay income tax on the distribution.
If you are 60 years old and happen to have millions of dollars in an IRA, and you know you won't spend all your money, you may have a charitable intent in the future. For example, imagine you decided you want to give $1,000,000 away, and your salary is $250,000 a year. Typically, you can only give up to 50% of your Adjusted Gross Income (AGI) away and take a tax deduction. However, until December 31, 2021, it is 100% AGI. So it would be $250,000.
If you know a little about a tax return, you know distributions from an IRA are taxable and add to your AGI. So, for example, if you made $250,000 and took a $1,000,000 distribution, your AGI would be $1,250,000 (ignore deductions, consult a tax professional familiar with your situation). So under the current rules, you could donate $1,250,000.
You can have the money sent directly from your IRA to the charity and not pay tax on it. If you were so inclined, you could empty your entire account and give it to a charity and not owe any taxes.
Reality Here is an extreme example, and you would have to be sure you would never need the money. My suggestion and reason for bringing this up are that many people have charities they donate to and care about. I am a financial professional, and I have talked with several other professionals since I learned this information. Unfortunately, nobody I have spoken to was aware of this, including myself, until I took the Ed Slott training.
If you are involved in a charity, especially on the fundraising side, or know someone, this is something to share with them. Most charities have major donors that could do more but hate paying taxes. Until New Year's Eve, that is not a concern, so mention it to people you know. It could help someone who might be willing to donate now if they could avoid the taxes. It could also help a charity make a difference.
I am happy to talk with anyone interested in this idea or to explain it to a charity if they want more information on the opportunity.
For more information visit the podcasts website:
https://poweringyourretirementradio.com/the-mega-qcd/
42% of working Americans surveyed by Pew Research in December of 2018 said they fear they would receive zero benefits from Social Security.
Social Security Trustees announced at the end of August this year that in 2033 unless changes are made, Social Security benefits would drop to 75% of their promised initial amounts.
50% of receipts rely on Social Security for ½ their income(Link #7). And for 1 in 4 seniors, it makes up over 90% of their income.
Having watched the recent debt limit talks and how Congress handled that, I’m not very encouraged that the politicians in Washington will do anything to fix Social Security any time soon. There are three Presidential elections and six Congressional elections before 2033. So expect to hear about it in passing in 2024. It will be a bigger deal in 2028 and, by 2032, a keystone issue if it has not been addressed by then.
David M Walker, United States Comptroller General from 1998 to 2008, wrote a book, Comeback America, where he goes through many ways to fix Social Security and other government spending issues.
I want to share five ways Social Security is fixable.
- Raise the wage base
- Change the PIA Formula
- Add a 3rd Bend Point
- Raise the claiming age
- Increase the early claiming penalties and decrease the delayed retirement credits
Realistically, the fix will be a combination of several fixes. Some of these might even be included, but likely any solution will be multifaceted as there is no simple answer. However, all you have to do is look back at Ronald Reagan’s changes made in April of 1983, which next year will be entirely in place after 40 years.
1) Raise the wage base
This one happens every year, but an inflation calculation dictates this one. In 2021 the wage base was $142,800, and in 2022 it is projected to be $147,000. If you have ever reviewed your earnings history or noticed that your withholding changes at the end of the year, the wage base is usually the culprit. FICA taxes are two parts: Social Security at 6.2% and Medicare at 1.45%. Social Security is only paid until you reach the wage base. Medicare is paid on all earnings.
The solution would be to raise the wage base significantly - to say $500,000, which means that 6.2% on everything between $147,000 and $500,000 (or whatever the number goes to) would be taxed. That would bring three times as much money into the system. If this happens, it would be because of the second way to fix Social Security.
2) Change the PIA Formula
A formula figures out your Primary Insurance Amount. In 2022, the first $1,024 you make in monthly income is replaced at 90%. Then from $1,024 to $6,172, your income is replaced at 32%. From $6,172 up to $12,250, which is equivalent to the annual wage base of $147,000, it is replaced at 15%. Social Security could lower the rate at which they replace your income.
The Monthly Income is calculated by your AMIE (Average Monthly Indexed Earnings), which is the average monthly earnings for the highest 35 years of your working career. The point at which the percentage replacement changes is called a bend point. The third way to fix Social Security would be to add a 3rd Bend Point.
3) Add a 3rd Bend Point
This idea is a bit of a combination of the first two ideas. The concept here will be if the wage base is increased, instead of replacing income at 15% up to the current wage base of $12,250, add a 3rd bend point and of 5% until the monthly income hits $41,667. This change would give people with significant incomes a bigger Social Security payment. In return, they would be paying more into the system, helping it to become solvent.
4) Raise the claiming age
The age when you can first claim Social Security benefits is 62. Starting in 2022, everyone turning 62 will have a full retirement age of 67. The age at which your payment stops growing for everyone is age 70. Increasing the claiming age by two years, so the earliest you could collect is 64, would delay people claiming while keeping the formula the same. This change would reduce the amount of money Social Security would be paying out during a retiree’s lifetime. The flipside of this idea would be idea number five.
5) Increase the early claiming penalties and decrease the delayed retirement credits
Currently, if you claim your benefit early, there is a reduction in your payment in the first 36 months. After that, your payment is reduced by 5/9th of a percent for each month. Anything more than 36 months is reduced by 5/12th of a percent for each additional month early. The fix here would be to increase the penalty for claiming early. For instance, you could potentially claim early at 5/9th of a percent for any of the 60 months. The other possibility is to reduce the delayed retirement credits. Instead of the current 2/3rd of a percent increase per month for each month, you wait, lower that percentage to entice people not to delay and reduce lifetime benefits.
To end on a positive note, I believe Social Security will be there for retirees. However, it may not be what you see today. Make no mistake, fixing Social Security does not mean keeping it the same. On the contrary, fixing Social Security means higher taxes for some, and in many cases, those same people may receive less or have to wait longer.
Fixing Social Security will be unpopular, and a minefield for the politicians in office, but a 24% decrease in benefits will surely be less popular if not addressed. From a cynical standpoint, the most significant problem against real reform is that many people who could start the ball running will not be in office in 2033 and have an election or two before then. In the climate in Washington today, why tackle a problematic issue when you can kick it down the road? Sadly the answer is you do not.
Social Security was never meant to make up half of someone’s retirement income as it does now for almost 50% of American seniors. The younger you are, the more time you have to take responsibility for your future and prioritize retirement savings.
Thank you for listening to this episode, as always. You can leave a question or comment on the website at PoweringYourRetriementRadio.com. Until my next episode in two weeks, Stay Safe.
Post Link: https://poweringyourretirementradio.com/5-ways-to-fix-social-security/
Welcome back to Powering Your Retirement Radio. This week we are going to talk about when to claim Social Security. This is basically your claiming decision. We talked about this before, but I still get lots of questions about the best time to collect. Like most things, the correct answer is it depends. It is a simple math problem if you happen to know what your investments will do and when you will pass away. Thankfully, nobody knows when their end will come, but we can make some assumptions.
The Guidelines I am going to use the calculations for someone born in 1960 or later. The numbers work in similar ways, but they are slightly different for people born before 1960. There is a table that shows notes to see the options at other ages. I will also use a Primary Insurance Amount of $1,000 to try and keep the numbers more straightforward.
Claim Social Security at 62 Claiming Social Security at age 62. The reduction in the payment would be 30%, you would get $700 a month instead of $1,000. So if you claim at age 62, at age 67, you would have received $42,000. At 67, you could start claiming $1,000 a month, which would be $300 a month more. It would take 140 months or 11 years and eight months, which means that by your 79 birthday, waiting would result in more money over your lifetime.
Disclaimer Now, I have to give you a disclaimer that payments don’t remain unchanged because of Cost-of-Living-Adjustments. They do grow at the same rate, though. So please consult with your local Social Security Office or an advisor to discuss your specific situation.
Claim Social Security at 63 Claiming Social Security at age 63, your payment would only be reduced by 25%, and you would receive $750 a month. At your full retirement age, you would have received $36,000. The $250 difference a month would take you 12 full years to break even. So at age 79, the total dollars received would be equal.
All other early ages Claiming Social Security at age 64, your reduction is 20%, at age 65, the reduction is 13 ⅓%. At age 66, the reduction is 6.5%. The breakeven would be 12 years for age 64 or breakeven at age 79. The breakeven would be 13 years for age 65 or breakeven at age 80. The breakeven would be 12 years for age 66 or breakeven between age 81 & 82.
So if you are looking for the most significant lifetime payment from Social Security, waiting tends to make sense if you believe you will live into your mid-80s. In today’s world, that is not that big of a stretch.
Emotions vs Facts I often say most decisions like this are emotional, not financial. You can look at the numbers, but if claiming at age 62 or 63 allows you to retire and reclaim your life, do you care if you might have more money later. Based on the number of people who claim early, it is clearly an emotional choice because waiting generally results in more money. Yet many people claim early because they fear Social Security will go away. I am not concerned about that, I will tackle that in another show.
Early vs Late Claiming If you start claiming Social Security at age 62 or wait until age 70, you would have a $67,200 head start. In 10 years and one month, the person who waited until age 70 would have broken even and would be making more every month.
The problem for most people is they can’t afford to retire without their Social Security income. The dilemma is Social Security is many people’s only source of lifetime income that will grow. Despite this many people claim Social Security early lowering the lifetime benefit they will receive. It is a real-life marshmallow test. If you don’t know what that means watch the video link in the last sentence.
So I want to keep this week short because there are a lot of numbers. Again remember if you want the most money possible, generally waiting leads to more money, provide you live into your mid-80s. So if you’re going to retire early or don’t expect to live into your 80s, it makes sense to consider claiming early.
College Planning That is what I wanted to discuss this week. First, however, I would like to mention an upcoming episode on college planning. I have a lifelong friend, who I’ve been friends with for so long my parents and his mother all went to high school together.
As it turns out, my friend Bryon has had a significant impact on my life. After we graduated, we went our own way in college. I was accepted to every school I applied to, which wasn’t helpful. I was hoping to only have one or two schools to pick from. I made a wrong choice and knew I didn’t want to go back to the school I picked for my Sophomore year. Bryon encouraged me to transfer to Moravian, where he was going. Fast forward many years, and I was back at Moravian for the inauguration of the school’s new President, you guessed it, my friend Bryon. Making Bryon one of the few people to be the President of the school he graduated from.
Admissions Season I will share this with you as we are heading into college application/admission season. I plan to have Bryon on as my first guess on the school to answer questions the parents and students might want to know more about. So if this is a topic of interest to you, please visit the Powering Your Retirement Radio website and use the ask a questions tab.
For more information you can visit my website:
https://poweringyourretirementradio.com/when-to-claim-social-security/
Hello and welcome back to Powering Your Retirement Radio. This week I am going to answer a question on spousal benefits from Social Security. I received a call from someone making sure their parent was receiving the correct amount from Social Security.
I will define a few terms and then wrap them all together in answer to the question.
Social Security Benefits
There are many types of benefits you can collect from Social Security. Spousal Benefits are the most common. Divorced spouse benefits and widow or widower benefits are common, too. Of course, there is always your own earnings record to collect on, as well.
Spousal benefits are not as common as they used to be but still pretty prevalent. Spousal benefits allow a lower-wage-earning spouse to collect on their spouse's benefit, which is why they are called spousal benefits.
Spousal Benefit
A spousal benefit collected on your spouse's earnings record at full retirement age is ½ of your spouse's primary insurance amount. If you collect at 62, the benefit is reduced, similar to your benefits if you collect early. Since the maximum spouse benefits start at 50%, the reduced benefit can be as little as 32.5% of your spouse's full benefit amount.
Widow/Widowers Benefits
A widow/widower's benefit can be started at age 60, which is two years earlier than if your spouse is still alive. The benefit pays more than a spousal benefit since it is a survivor's benefit. The reduction for claiming a widow/widower's benefit at age 60 is 70.5% of the full retirement age benefit.
Survivor Benefits
Survivor benefits are paid to a living spouse if the living spouse had the lower of the two Social Security benefits. Social Security will not send two checks to a house where one person now lives. However, they will continue to send the larger of the two checks. Technical note: If you are the lower-wage earner, you will still receive your benefits. The survivor benefit is considered the difference between the two checks. You would only receive one check, so it doesn't make a difference.
The Question
How do I know if my parent is getting the correct benefit? First, you have to start with what your parent is entitled to collect. Here is the situation: parents divorced before retirement age, but after a longer than ten-year marriage. One spouse then passed away. So what is the survivor entitled to collect?
Benefits
You need some basic information. First, did both spouses have enough of a work history to qualify for their benefits? Meaning, did they have 40 quarters of employment? Yes, so they both had their own earnings record.
The next thing we had to determine was who had the better earnings record. Of course, if the surviving spouse had a better earnings history, the spousal benefit is not essential. But, on the other hand, if they were the lower-wage earner, the spousal benefit might have been worth more than their benefit.
Deemed Filing
The key with your benefit or a spousal benefit is you can only collect on one, and it will always be the larger of the two. You used to be able to choose one and let the other one grow. The change several years ago changed that. It is called deemed filing. Deemed filing means if you file, you are considered to have filed for all of your possible benefits, and you get the most significant payment.
But...
Of course, it is not that easy. Widow/Widower benefits are calculated separately from your Spousal Benefit and your benefit. You can collect on a Widow/Widower benefit at age 60. It would be reduced, but collecting on the benefit does not affect the growth of your own or your spousal benefit if that would be more.
Suppose your benefit and your deceased spouse's benefit are close in value. In that case, you could collect your widow/widower's benefit at 60, letting your benefit grow. At some point down the road, your benefit may grow to be more significant. You can choose to switch over then or let it continue to grow and switch over later, and it is worth even more.
Social Security help
Social Security agents should be aware of your previous marriages because of tax filings. However, I would not always assume they are aware of a deceased former spouse. It should be connected to your record, but be proactive when speaking to a Social Security agent since you can collect on it separately. Also, if you remarry after the age of 60, you are still entitled to Widow/Widower benefits.
Conclusion
In the end, I left my client with a list of things to check on when they spoke with Social Security:
- Determine what benefit the parent is currently collecting on.
- Determine what the Widow/Widower benefit would be.
- Determine if leaving one benefit unclaimed would result in that benefit becoming a more significant benefit down the road.
If it becomes more significant, can you live on the other benefit today and get the other benefit later?
When you consider you can claim several different benefits, every month from 62 to 70, the multitude of benefits is staggering. You need to make sure you understand what is available and get some help understanding your options. A Social Security agent will not give you advice, only information.
If you are facing a Social Security decision shortly. In that case, you can always drop me an email or leave a question on the podcast website. I'd be happy to have a conversation with you.
For more information, visit the show notes at https://poweringyourretirementradio.com/social-security-spousal-benefits/
Hello and welcome back to Powering Your Retirement Radio. I am Dan Leonard, your host and I am a PG&E Retirement Specialist. This week, we will talk about the Social Security clawback, which happens when you earn money and draw Social Security benefits before Full Retirement Age.
What is a PG&E Retirement Specialist?
I receive a question, “What is a PG&E Retirement Specialist?”
A PG&E Retirement Specialist focuses on helping PG&E employees plan for and retire from PG&E. Why do you need a PG&E Retirement Specialist? Think about going to the Doctor, and any competent Doctor can identify many different ailments. Likewise, most competent advisors can advise you on retirement. If you require a specialist, you likely do not want your General Practitioner helping you with major surgery. Instead, you want them to refer you to a Specialist. You can get good advice from many financial advisors if you are working with a specialist. However, they have expertise in that particular area. In short, it is easier for a specialist to offer general advice than for a generalist to offer specialized advice. For instance, understanding the cost of your medical insurance. A PG&E Retirement Specialist will know to ask about your Retiree Medical Savings Account and know how it works, and a generalist may ask if you know what your health care will cost in retirement. Hopefully, that helps to clear that up.
Please feel free to ask more questions on the podcast website PoweringYourReitrementRadio.com
Social Security clawback
Let’s move on to today’s topic of the Social Security clawback, which happens when you earn money while collecting Social Security. It is an issue until you reach full retirement age. Until the year you reach FRA, Social Security will claw back $1 for every $2’s you earn above the earnings cap, currently $18,960 in 2021, and it is adjusted annually based on inflation. In the year you reach FRA, the limit is raised to $50,520.
Most people will avoid working to avoid the Social Security clawback. However, there are a few options. If you decide to go back to work and it has been less than a year, you can take advantage of the one-time do-over and pay back all money paid out on your benefit, and then it is like it never happened. You can also keep collecting Social Security and limit your income to avoid the Social Security clawback. Neither of these two options is all that popular. Option three is to keep working, earn whatever you can, and know that the Social Security clawback will be calculated over the earnings limit. The key is they are clawed back, not forfeited.
NOT A FORFEITURE
What happens is the money that is clawed back is kept track of. When you reach your full retirement age, Social Security will automatically recalculate your benefits and adjust your payment to redistribute the clawed back money over your lifetime, affective raising your benefits. For instance, let take round numbers to illustrate the concept. Your experience would be different. Let’s say you have $30,000 clawed back as part of the Social Security clawback and your remaining life expectance happened to be 30 years. Your benefit would increase by $1,000 a year. That is oversimplified because interest and other things go into the calculation, but it is the basic idea. You have to take into account that some people will like past life expectance and others won’t. In short, unless you know when you are going to die, you can’t know if it is this calculation will work out in your favor or not.
Conclusion
In the last episode, I said that most people take the money when they want it, not necessarily when needed. If you decided to collect Social Security early, but have an excellent opportunity to earn income, don’t turn it down because there is a clawback on your Social Security. Be aware you are going to have a Social Security clawback and plan for it. You can be proactive and let Social Security know.
You will get the money back but once your benefit is recalculated at Full Retirement Age. So while many people have strong feelings about the Social Security clawback, know that it is only a clawback and a forfeiture.
I hope that helps clear up the Social Security clawback and the earning limit for you. As always, I welcome your question on the Podcast Website, PoweringYourRetirementRadio.com, and you are welcome to reach out if you want to talk in person on my office line, too. 924-726-4015.
For more information, visit the show notes at
https://poweringyourretirementradio.com/social-security-clawback
Hello, and welcome back to Powering Your Retirement Radio! Today we are going to talk about how your Primary Insurance Amount is calculated. I will try not to bore you, but there are many factors you need to understand. I will include several links to the Social Security website if you want to do a deeper dive.
Your Primary Insurance Amount is the basis for your Social Security whether you collect early, on time, or defer your payments. Roughly, 54 million Americans receive monthly Social Security retirement benefits. That includes retirees, dependents, and survivors of deceased workers. The average check is $1,503 a month or just over $18,000 a year. So, how does Social Security figure out what your payment will be?
The basic formula in full Social Security language, and then we will break it down. You receive your PIA (Primary Insurance Amount) at your FRA (Full Retirement Age), based on your Earnings Record.
Seems quite simple, but what if you don't collect your Social Security at your FRA? This is where the fun begins. I will tell you most people claim Social Security when they want it rather than when they need it or should take it. What I mean is it is an emotional decision, not a financial decision.
How do they calculate PIA (Primary Insurance Amount)? I wish I could say it is simple, and it sort of is. They take your highest 35 years of earnings adjusted for inflation up until you reach age 62. After 62, those years can be used, but they are not adjusted for inflation.
The earnings are adjusted for inflation based on your AMIE (Average Monthly Index Earnings) which is adjusted annually and affects the annual wage base.
Your PIA Primary Insurance Amount is the starting point, the next thing to determine is when will you collect your Social Security. If you want to claim your benefits early you can use the calculator on the Social Security website to determine the reduction. For instance, if you were born is in 1960 or later your full retirement age is 67, but you can claim as early as 62. If you were born in 1960 that means you could start collecting as early as 2022. If you do you will only receive 70% of your PIA Primary Insurance Amount, at 63 and 64 your reduction is 5% less each year so 75% and 80% respectively, and at 65 and 66 the reduction is slightly more at 6.7%. So 86.7% and 93.3%
If you choose to wait until after your FRA, the calculation is much simpler it is 2/3rds of 1% for every month you wait up to age 70. It works out to an 8% a year increase, or 24% over the 3 years. So if your PIA Primary Insurance Amount was $1,000 at FRA, at 62 you would receive $700 and at 70 you would receive $1,240 or 77% more than it would be when collecting at age 62.
That is not an insignificant difference.
That is how to calculate your Primary Insurance Amount, there are several links above. If you’d like, you can set up a time to review your Social Security record with me at www.TalkwithDL.com, mention this Episode in the meeting request. Until next time stay safe.
For more information visit my website: https://poweringyourretirementradio.com/primary-insurance-amount/
Ever wonder why people claim Social Security at age 62? Many people do, even though they should wait until age 70. Is it fear, greed, poor planning, or lack of knowledge? There are many mistakes people make, and I will touch on 6 other mistakes people often make. Welcome back to Powering Your Retirement Radio. I am your host Dan Leonard, and I am a PG&E Retirement Specialist. I have made it to Episode 10, which means I have now published more episodes than half of all podcasts. Six Common Mistakes People Make
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Worrying about dying too young - Longevity Insurance
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Waiting too long to claim -Disability Benefits
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Not working because of the earnings limit - Losing money from working
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Not filing for widow's or widower's benefits - Collect at age 60
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Getting divorced - Married for 10 years, you are eligible
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Hitting tax torpedoes - RMD’s & IRMAA charges
Collecting at age 62 or waiting until age 70
There are two paths people follow. One is to collect as soon as possible because you think Social Security is going to disappear. Two is to collect the biggest pile of money over your lifetime.
Collect ASAP – Age 62
Collecting at age 62 usually means you are collecting because you can't work anymore due to health issues, or you lost your job and couldn't replace it, and you need the income. The other option is to collect Social Security at 62. Finally, you can reach the number you need to retire at 62. The first path is more common than you might think. The second option is not uncommon if you have done an excellent job with your 401k and you have a pension.
The biggest pile of money
The biggest pile of money is available to all. The key is planning. If you wait until age 70 to collect your benefits, you will receive between 70 to 75% more at age 70 than you would have received at age 62. You will also have missed 8 years of payments. Many calculators can calculate the cross-over point where waiting makes more sense. Depending on the marital status, that point is usually between 77 and 83. In today's world, that is not a big stretch to break even.
What are you to do?
There is no one correct answer. In the claiming at 62 examples, if you can reclaim your life, replace your income and retire, it is hard to convince someone they need to keep working. On the other hand, if you can afford to go without Social Security and still retire at age 70, you will get the most money possible. It is hard to argue with maximizing the one source of lifetime income that will continue to grow over time.
This decision is why it makes sense to talk with your advisor and determine what works best for you. In some cases, you may regret going without the money when you finally get it but don't have the desire to spend it? You may also regret taking Social Security at 62, and you are in your late 80's, and your income is feeling the effects of inflation.
When it comes to Social Security, think of it as longevity insurance, and planning for the worst-case scenario is not a bad idea.
SURVEY LINK
For more information, visit the show notes at
https://poweringyourretirementradio.com/claiming-social-security-benefits-at-age-62
Welcome back to Powering Your Retirement Radio. I am your host Dan Leonard, and I am a PG&E Retirement Specialist. Social Security is one of the most popular and confusing programs around. In Season two of Powering Your Retirement Radio, I will talk about Social Security Fundamentals. In addition, we will cover claiming, spousal benefits, delayed retirement credits, and various other topics in the coming episode.
Today I will start with a startling study by Vanguard, which the results of are heartbreaking. The survey of 5 million households with investments at Vanguard illustrates how little the average investor has saved. It also shows how few assets they own. If someone that makes $50,000 a year with a 3% growth rate in their income will earn over $3.5 million in their career, the low savings rate is not because they do not make enough money.
The moral of the story is it doesn't matter when you start saving, but you need to start. The earlier, the better. Social Security is so popular because people don't save enough while they are working.
Then I focus on how Social Security was never designed to be an income-replace vehicle. After that, I will cover a few key terms you should know when you look at your Social Security record. Finally, I will leave you with some thoughts about claiming Social Security. There are a lot of unknowns when making your claiming decision.
How long will you live? How well will your other investments do? What do you want to do with your assets when you pass?
The way I look at it is this. You either want the largest possible payout from Social Security over your lifetime. Or you want to retire and reclaim your life sooner rather than later. There is no one correct answer.
I find decisions around retirement and retirement income are rarely based on facts. Most of the time, money decisions are based on emotions. I don't want to work anymore! I can't leave until I have 40 years on the job. And sadly, many more people retire early because they have to rather than they want to. Early retirement due to health concerns is more common than you might think.
Conclusion
Saving for retirement doesn't have to be complicated. Pay yourself first. Once you have done that, you are on your way to prosperity. If you were 20 years old today and could save $371 a month, you would be a millionaire at age 65. That is 540 months, and the $371 seems easy when you are 40 to 50 years old. At 20, it is a little intimidating. It is a total investment of just over $200,000. Yet Vanguard says their average investor has just under $61,000. If you are listening to this, you can do better. The average person isn't listening to a financial podcast, so keep up the excellent work!
For more information, visit the show notes at: https://poweringyourretirementradio.com/social-security-fundamentals/
This is the 8th Episode and the end of Season 1. The first 8 Episodes have been focused on the PG&E 401(k). Today, I will cover the different ways to manage your 401(k) investments. Then we'll discuss your options if you have a 401(k) from a former employer.
How you manage your 401(k) can be a frustrating subject. So why is it people struggle with what to do with their money? It is simple if you try to research the topic. There is an astounding number of articles online, and there is actionable advice in most of those articles.
I thought I would give you the four ways to manage your 401k.
- Default Option – Set it and forget it
- Financial Engines – Plan managed
- Individual Managed Help – Getting outside help
- Self-Managed – DIY
What do you do with your 401(k) when you leave an employer?
- Leave it in the old plan – Leave it behind
- Consolidate it to your new plan – Take it to your new company
- Roll it over to an IRA – Roll it to your IRA
- Cash It Out – Take the money and run (please don't)
Please have a listen to our final 401k Episode for now. In our next series of shows, we will be taking a look at Social Security.
www.TalkWithDL.com – To set up a time to talk
Investopedia Article (link)
For more information, visit the show notes at:
https://poweringyourretirementradio.com/ways-to-manage-your-401k/
How much you will have saved for retirement is a mystery to most people. The key is it is a number you can calculate. But you have to be comfortable making some assumptions.
I’ll address several questions:
What is an average 401k balance at retirement?
Is it too late to catch up?
How much should I save?
How do I figure out how much I will have?
What is in your control?
How much are you saving?
Where do you invest your money?
What can you influence?
How much do you make?
How long until you retire?
Your health
Things not in your control?
Your return
Someone else's return
Your goal is the only one that matters
Conclusion
Figuring out how much you will have saved at retirement is not impossible. There are lots of online tools you can use.
Have you ever traveled to a big city for the first time? You might have taken a Grey Line tour. Surely, you saw the town and had a good time. You figured it out and saw the city.
If you hired a local guide and went exploring, you likely had a better time. You feel like you got to know the city a lot better. Many competent advisors can help you. It is literally their job to do this. Anyone you are considering working with should be happy to talk with you. Let them explain how they can help you. I do this with anyone interested in learning more. Make sure there is a connection, and you can communicate with them.
If you get help sightseeing? It could help you if you considered having a guide when it comes to planning for retirement.
For more information, visit the show notes at:
https://poweringyourretirementradio.com/saved-for-retirement/
Owning company stock in your 401k can elicit strong reactions. Whether you are for and against the idea, I suspect you I believe you are right. You might be, but you might not be.
There is no right answer, so listen to this episode to learn about the pros and cons of doing so.
I field my first listener question about the Default option. There is a second question about setting up an allocation and not touching it? It is great to know people are listening and are asking questions.
On the company stock topic I will touch on Net Unrealized Appreciation or NUA. If you don't know that is, be sure to listen, it can save you money! Converting Ordinary Income in to long Term Capital gains. NUA lowers your future Required Minimum Distributions or RMDs. There are a few things you have to do and a tax cost up front. In the right situation it is worth it.
I'll share a story of an unhappy person who got prudent financial advice. They didn't like the outcome, but the advice is what you should have done. Finally, I will remind you of the power of the self-directed investment option in the 401k called BrokerageLink.
For more information or to contact me, go to https://poweringyourretirementradio.com/owning-company-stock-in-your-401k
If you do a quick Google search for "how to select your 401k investments?" You get a mind-numbing amount of results. Since nobody ever goes to Page 2 of Google, I decide to review page one's results and summarize the similar ideas in all the articles.
The overwhelm factors came back to three recurring themes, Risk, Fees, and Time Horizon. All three are not unexpected, but how you evaluate your risk tolerance is important. Overestimate it, and you could leave yourself very upset, underestimate it, and you could find yourself missing out.
Fees are always important, but you can not let yourself be convinced the low cost means it is better than something with a higher cost. Total return after fees is something you have to consider.
Finally, the time horizon is important as well. The phrase time in the market not timing the market. There is a great chart showing why holding investments for the long term through ups and downs positively affects the probability of success. You still have to pick good investments, but the longer you hold them, the link show, the better your odds of success.
After reviewing some of the factors to consider when selecting 401(k) investments, I will dive into the different selections in the PG&E 401(k). When selecting 401(k) investments inside the PG&E 401(k), you have many choices. There are Target Date Funds, Equity Funds, Bonds Funds & the PG&E Stock Fund. There is one more, the Self Directed BrokerageLink option which really opens the door to a much bigger window of 401(k) investments.
Listen to this episode to better understand what is available insider the PG&E 401(k). As always, you can ask a question on the website under the Ask A Questions tab, whether it is about 401(k) investments or anything related to your personal financial goals.
For more information, visit the show notes at:
https://poweringyourretirementradio.com/401k-investments/
In Episode 4, I review a few articles about clarifications to the SECURE Acts new 10-year Rule for Non-Designated Beneficiaries and a new bill talking about the SECURE Act 2.0. After that, we’ll address how to use the Spillover Election to help you do a MEGA Backdoor Roth Contribution, while still getting a tax-deferral on your Elective Deferral.
The new 10-year rule ended the ability for many people to do a Stretch IRA, meaning instead of being able to deferral the taxes, on inherited retirement assets, over your lifetime you now only have 10-years. It isn’t a big deal if you planned to spend all the money, but for savers who would take minimum distributions over their lifetime. The change is forcing them to pay taxes sooner rather than later.
The SECURE Act 2.0 has been proposed and passed through the House Weighs and Means Committee unanimously. It is a far way from being a law, but the provision raising the age to start Required Minimum Distributions from Retirement Accounts to 75, is likely to be popular.
Finally, Backdoor Roth IRA Contributions are great if you can do them. There is a catch you need to make sure you understand so you don’t get a surprise at tax time. If you are subject to that catch or just want to save more and not have to jump through a lot of hoops, the MEGA Backdoor Roth contributions through your 401(k), can make your life easier.
As a PG&E Retirement Specialist, I help people maximize their contributions to their 401(k) both before tax and after-tax. Whether you are just starting out at PG&E or you are ready to retire understanding the in’s and out’s of the PG&E 401(k) can give you a leg up on saving for retirement.
For more information, visit the show notes at https://poweringyourretirementradio.com/death-of-the-stretch-ira
We are taking a look at another article from Michael Kitces' blog. "3 Types Of Retirement And Their Very Different Savings Strategies."
With life expectancies growing, the idea of a Traditional Retirement and Early Retirement are becoming harder and harder to achieve. The model of growing up and going to school for 20 years, working for 40 years, and then being retired for the rest of your life which is now stretching to 30 plus years if you retire at 60, is harder to make work. The article talks about two other types of retirement as alternatives to traditional retirement.
Then we dive into the PG&E 401(k) and your contribution rates and the company match. Many people think maxing out your 401(k) is a good idea. I am not here to tell you it isn't, but you need to be aware of how PG&E matches your contributions. It is on a per paycheck basis which means if you don't contribute on a specific paycheck, PG&E does not make a contribution.
Listen to learn how to make sure you don't miss out on matching dollars from the company.
For more information, visit the show notes at https://poweringyourretirementradio.com/3-types-of-retirement-and-the-different-savings-strategies-ep-003
My second episode – which means I have passed 12% of all podcasts! It’s my first day as a podcaster and I am already a success! If I produce 13 more episodes, I will be in the top 50% of all podcasts for the most shows.
In this episode, I review an article from CNBC entitled "This chart shows why investors should never try to time the stock market.” It shows you how missing the 10 best or worst days over a decade severely impacts your outcome. The moral of the story is most people are not that prescient to be able to pinpoint the best or worst days over any time period.
I help many PG&E employees manage their PG&E Retirement Savings Plan [PG&E 401(k)]. One question I frequently get is, what should I invest my PG&E 401(k) in? Many people just starting out don’t understand the 401(k) and usually go with the default option. If you don’t plan on watching your account, the default option is better than putting it in cash, in my opinion. You can do better, whether or not your get help from a professional or do it yourself.
As a PG&E Retirement Specialist, I help employees maximize their PG&E 401(k) matching contributions and take advantage of the BrokerageLink option that is available to all PG&E 401(k) participants.
For more information, visit the show notes at https://poweringyourretirementradio.com/test-episode-ep-002
I give you a short description of what to expect going forward. I review an article by Michael Kitces on “How the Financial Planning Process Differs for Young Clients,” then I attempt to guide you to an answer that is the most often asked question most financial advisors hear: how much money do I need to save for retirement?
As a PG&E Retirement Specialist, I have helped many employees and now retirees of PG&E successfully retire. The 3 main components are the PG&E Pension, the PG&E Retirement Savings Plan [PG&E 401(k)], and Social Security. If you want to get even close, you can use the Retiree Medical Savings Account (RMSA) estimator on the PG&E Benefits site.
For more information, visit the show notes at https://poweringyourretirementradio.com/test-episode-ep-001
Hello and Welcome to Powering Your Retirement Radio. I am Dan Leonard.
I have been in the financial industry for over 30 years. From working on the Floor of the American Stock, to being a mutual fund and annuity representative marketing to financial advisors, I covered 16 different states, not surprisingly, Hawaii was my favorite destination. I lived and worked in Victoria, BC for 5 years, and in 2012, I had the opportunity to return to the San Francisco Bay Area, which nine years later has led to this show!
Over that 30 years I have been in hundreds of advisors' offices and talked with thousands of individual advisors. The advisors that always seem to be at the top of their profession had a few things in common, one thing that always stood out to me was they had an area of expertise. Which is why after 9 years of focusing on PG&E employees and retirees, I feel ready to start this podcast. In those 9 years I have worked specifically with a focus on PG&E and learned all aspects of the PG&E Retirement Benefits package. Whether it is the 401(k), New or Old Pension, Retiree Medical Benefits, or understanding the Employee Assistance Program I have you covered.
Like anything you do repeatedly, you improve with time and experience. You only want to retire once, I’ve seen the PG&E retirement process over 100 times. If you are getting advice from a financial advisor that does not specialize in PG&E retirement, you are dealing with what I would call a retirement generalist, I am a PG&E Retirement Specialist.
Whether you are looking for an advisor to help you over the long-term or you just want a few questions answered, I hope you will come to think of this show as a valuable source of information.
Please hit the subscribe button, so when the first episodes are released on April 23, 2021 you will get a notification, where you subscribe to your podcasts, you can also follow the link in the show notes to sign up for notifications directly from me and as an extra incentive up until the 4th episode is release on May 21, 2021, I will be running a contest for people who rate and review this podcast. With over $7,500 in prizes I encourage you to sign up,
To give you a fee of the format, it will be mainly me, occasionally I will bring in a subject expert for certain topics. I will do a season format, which will be a series of shows on a specific topic. I will be starting with Season 1, which will be 8 episodes focused on the PG&E Retirement Plan or the 401(k). I will talk about a recent article or answer a listener’s question, The discuss a specific aspect of the PG&E Benefits Plan, and then talk about a Financial Planning Concept which is a way you maximize your benefits.
Thank you for taking the time to listen to this introduction. I am Dan Leonard, I am a Certified Financial Planner™, and an Enrolled Agent. I look forward to talking with you and answering your questions in the coming months and years.
Until my first episode on April 23, 2021 - stay safe.